UBS ran a screen and found a basket of stocks that are cheap — even if the economy falls into a recession. The investment bank took a peek inside markets to find sectors that are overly beaten up to discount the risk of a downturn. Stocks remain at depressed levels even with last month’s rally, with the S & P 500 down roughly 12% this year, as investors debate rising inflation and slowing growth. “At the stock level, the large dispersion and pockets of extreme valuation discounts leaves attractive opportunities in areas where recessions risks look largely priced,” UBS strategist Keith Parker wrote in a Wednesday note. UBS discovered stocks that are cheap, quality names after adjusting for a recession scenario. These names have underperformed since June, despite rising 2023 earnings estimates, and could have roughly 35% upside in a downturn, according to the note. The investment bank expects “there is room to add selective cyclical exposure in sectors which offer better risk/reward,” with a preference for consumer discretionary and energy stocks. Here are 10 picks. AutoNation looks cheap even in a recession. Car retailers have maintained pricing power amid strong demand, despite slowing consumer spending and weaker economic growth. AutoNation shares are up 3% this year. Dick’s Sporting Goods is “overly priced” for a downturn. Citi recently named the sports retailer to its focus list , saying it is trading at a “fraction of the valuation” warranted by expanding profit margins. Shares are down 15% year to date. Merck could have “more room to run,” according to Deuterium Capital’s John Ricciardi. The fund manager recently named stocks investors should consider outside of tech. Merck is up 13% this year. Toll Brothers , Stanley Black & Decker , M & T Bank , Bristol-Myers Squibb , Foot Locker , Lennar and Columbia Sportswear also made the list.
