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HomeMarketKohl's, PulteGroup, Macy's and 6 Other Stocks That Already Price in a...

Kohl’s, PulteGroup, Macy’s and 6 Other Stocks That Already Price in a Recession

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The stock market has begun to reflect a high probability of a recession. Strategists at UBS screened for stocks that have clearly priced in that risk—and are worth considering.

A recession seems in the cards in 2023, even if it turns out to be a mild one. High inflation is causing the Federal Reserve to lift interest rates, a move meant to squelch inflation, but at the cost of economic demand. 

The stock market has taken note. To be sure, the
S&P 500
 remains arguably expensive, but that index isn’t always the best gauge of the entire market. A look at a wider universe of stocks shows that a recession is getting priced in. The S&P 1500, which is down in the midteens in percentage terms this year, has a median forward price/earnings ratio of about 15.8 times, according to UBS strategists. That’s in the 40th percentile of lower P/E’s for the index historically. Over a fifth of stocks are trading below 10 times earnings. In the past, the only times a higher proportion of the index’s stocks were that cheap were in 2020, 2008, and 2001, all around recession times. Lower multiples, in this context, reflect that investors want to pay a lower price to own stocks because of the risk to earnings posed by a recession.

That’s why UBS strategists, lead by head of U.S. equity strategy Keith Parker, screened for the stocks that most reflect that a recession is coming. 

The screen involves a few key criteria. The most important element is that these stocks have cheap recession-adjusted P/E’s. The strategists lowered these stocks’ expected earnings per share by amounts commensurate with how much their earnings per share typically declines year over year during recessions. A stock with a recession-adjusted P/E that is below its 10-year average P/E could fit the screen. Other criteria for the screen include a score for the quality of the company; UBS assessed the skill of companies’ management, profitability, and financial position. A high score in quality would indicates companies likely to generate growing earnings when the economy improves.

The main key here is that UBS is differentiating between stocks that simply look cheap, and those that are truly cheap. Many stocks trade at low P/E’s because of risk to earnings, but some of those stocks can still decline when analysts are forced to reduce their profit estimates. But UBS’ stocks are cheap, even assuming lowered earnings per share, so there shouldn’t be much downside to these stocks.

Here are nine stocks on UBS’ screen that have recession-adjusted P/E ratios below 10 times. 

(PHM) trades at a recession-adjusted P/E of 6.6 times, 58% below its historical average.

Toll Brothers
(TOLL) trades at a recession-adjusted P/E of 8.8 times, 50% below its historical average.

(JWN) is at 8.8 times, 54% below its historical average.

(M): 7.5 times, 47% below its historical average.

(KSS): 9.3 times, 36% below its historical average.

(HBI): 8.1 times, 45% below its historical average.

Synovus Financial
(SNV): 9.2 times, 50% below its historical average.

Affiliated Managers Group
(AMG): 7.9 times, 53% below its historical average.

): 9.5 times, 42% below its historical average.

Investors still need to do their homework on these stocks before buying them, but there’s at least a compelling preliminary case for them. 

Write to Jacob Sonenshine at


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