Top stocks insulated from risk with recession not fully priced in - Morgan Stanley

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Multiples and earnings estimates are falling, but a recession is yet to be fully priced, Morgan Stanley says.

The S&P 500 (SP500) (NYSEARCA:SPY) would have to fall to 3,000, about 18% from current levels to fully reflect a recession, strategist Mike Wilson wrote in a note Tuesday.

"The Bear market will not be over until recession arrives or the risk of one is extinguished," Wilson said.

"Given the macro turmoil of the past few weeks, we wanted to provide a screen of stocks where earnings are relatively insulated from this risk and have the potential to see upward revisions," he said. "In a world where both Fire (rate hikes) and Ice (growth slowdown) are dominating the market, it is important to look for stocks that have idiosyncratic earnings stories."

With that in mind, Morgan Stanley analysts identified stocks where there is high conviction earnings will be revised upward going into 2023, with Overweight ratings and upside to the price target.

The stocks by sector are:

Communication Services (XLC)

1. Endeavor Group (EDR), 2022 EPS $2.76, 2023 EPS $1.17, upside to price target 52%
2. Formula One Group (FWONK), ($0.04), $0.58, 21%
3. Match Group (MTCH), $2.17, $2.81, 106%

Consumer Staples (XLP)

1. Coca-Cola (KO), $2.48, $2.69, 29%
2. Monster Beverage (MNST), $2.70, $3.33, 33%

Energy (XLE)

1. Exxon Mobil (XOM), $9.95, $10.73, 17%
2. Marathon Petroleum (MPC), $12.05, $11, 25%
3. Tenaris (TS), $3.91, $3.76, 46%

Healthcare (XLV)

1. Eli Lilly (LLY), $8.39, $9.86, 28%

Industrials (XLI)

1. Advanced Drainage Systems (WMS), $4.18, $5.35, 66%
2. Alaska Air (ALK), $4.52, $7.75, 94%
3. Deere (DE), $23.52, $30.09, 42%
4. Delta Air Lines (DAL), $3.48, $7.15, 120%
5. Driven Brands (DRVN), $1.10, $1.27, 44%
6. WillScot (WSC), $1.36, $1.81, 54%

Info Tech (XLK)

1. Zoom Video (ZM), $3.73, $3.99, 32%

Materials (XLB)

1. Sherwin-Williams (SHW), $9.50, $12, 51%

Real Estate (XLRE)

1. Invitation Homes (INVH), $0.78, $0.91, 26%

Utilities (XLU)

1. AES (AES), $1.63, $1.80, 53%

See Goldman Sachs' recently rebalanced stable stocks basket.