With recession fears mounting on Wall Street, CNBC Pro has found stocks cheap even in an economic slowdown. The major averages are heading towards a losing week on Friday. Investors are concerned that this week’s announcement of the largest interest rate increase since 1994 by the Federal Reserve could push the economy into recession. Stocks may also continue to decline if earnings estimates decline. This week, Deutsche Bank analysts said earnings estimates are “extremely high,” given their basic assumption of a modest recession by the end of 2023. They described large-cap growth and technology stocks as particularly vulnerable to higher expectations. However, some stocks may offer investors a long-term “margin of safety” even in a recession scenario. CNBC Pro lowered its 12-month earnings estimates for each S&P 500 company by 30% to calculate the forward price-to-earnings ratio per share in a recession scenario. We then compared the price-to-earnings-adjusted for the new recession to the average price-to-earnings for the past five years. Certainly, these are long-term investment opportunities to take advantage of in current sell-offs as they should reflect the true value of the securities over time. Here are the 20 cheapest S&P 500 stocks in a recession scenario: Several energy stocks are on the list. Occidental Petroleum’s stock is expected to sell 8.8 times its earnings after adjusting to the recession, which means it will trade at a 65.7% discount to the five-year average price/earnings/earnings-forward of 25.8. Valero Energy shares should trade at P/E of 12.2 even in deflation, at a discount of 54% of its 5-year average forward earnings. Diamondback Energy shares are expected to trade at 7.9 times earnings in the recession, or at a 33% discount. Alaska Airlines may be cheap even after ratings drop. Even after lowering earnings estimates for a recession scenario, the airline is expected to trade 10.6 times its earnings, or about 63% off. United Airlines also made the list. The airline’s P/E ratio is expected to be 13.7 in the downturn, or at 45% off. It also appears that some homebuilders are buying opportunities in a recession scenario. DR Horton has a recessionary P/E of 5.2, which would be at a discount of 46% from average forward earnings for the past five years. Lennar has a 5.6 P/E slump, 37% off. PulteGroup has a 4.7 percent P/E slump, or about 43% off. Other stocks on this list are Mosaic, Moderna, EOG Resources, Devon Energy, Pioneer Natural Resources, Chevron, Exxon Mobil, PVH, Coterra Energy, Weyerhaeuser, Global Payments and Nucor.
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