Goldman screens for stock bargains for a recession
Feverpitched

Stocks remain in a bear market, but absolute and relative valuation metrics still show that U.S. equities are expensive compared to history, according to Goldman Sachs.
Goldman's equity strategy team notes that the S&P 500 (SP500) (NYSEARCA:SPY) started the year with a next-twelve-months P/E of 21x, the 91st percentile since 1980. It has dropped to 15.8x, but is still at the 66th percentile.
"Despite elevated recession risk, geopolitical tension, and a generally murky macro outlook, the earnings yield gap - a common proxy for the equity risk premium - trades close to the tightest levels in 15 years," strategist David Kostin wrote. "Relative to both real 10-year Treasury yields and investment-grade corporate bonds, the S&P 500 index valuation ranks above the 75th %-ile since 1980."
MKM strategist Michael Darda said the equity risk premium has actually fallen since the market topped in January.
In one strategy to look for cheap stocks, Goldman screened for cyclicals in the Russell 1000 (NYSEARCA:IWB) that are attractive relative to recessionary earnings but also exhibit quality.
"As a stress test, we cut the consensus 2023 EPS of Russell 1000 cyclical stocks by 30% and select those whose P/E on this stress-tested earnings is less than 15x and cheaper than their 10-year median P/E," Kostin said. "We also exclude stocks with weaker than average balance sheets and especially negative EPS revisions over the last month."
Those stocks are:

Pulte Home (NYSE:PHM), price to 2023 EPS currrent consensus 4.2x, price to 2023 EPS with 30% cut to consensus 6x
Toll Bros. (NYSE:TOL), 4.6, 6.5
Mosaic (NYSE:MOS), 4.8, 6.9
Arrow Electron (NYSE:ARW), 5.6, 8.0
Vontier (NYSE:VNT), 5.7, 8.1
PVH (NYSE:PVH), 5.8, 8.2
Avnet (NASDAQ:AVT), 5.8, 8.3
Capri Holdings (NYSE:CPRI), 5.9, 8.4
Hanesbrands (NYSE:HBI), 5.9, 8.5
Brunswick (NYSE:BC), 6.3, 9.0
Whirlpool (NYSE:WHR), 6.5, 9.3
BorgWarner (NYSE:BWA), 6.7, 9.6
CF Industries (NYSE:CF), 7.0, 10.0
Skyworks Solutions (NASDAQ:SWKS), 7.2, 10.2
Mohawk Industries (MHK), 7.2, 10.3
Steel Dynamics (STLD), 7.5, 10.8
Builders FirstSource (BLDR), 7.6, 10.8
Tapestry (TPR), 7.6, 10.9
WESCO international (WCC), 7.6, 10.9
Owens Corning (OC), 7.7, 11
Coherent (COHR), 7.8, 11.2
Univar Solutions (UNVR), 7.9, 11.3
Qorvo (QRVO), 8.6, 12.2
Qualcomm (QCOM), 8.7, 12.4
AGCO (AGCO), 8.7, 12.4
Tempur Sealy (TPX), 8.8, 12.6
XPO Logistics (XPO), 8.8, 12.6
Fortune Brands Home & Security (FBHS), 9.0, 12.8
Polaris (PII), 9.2, 13.1
ManpowerGroup (MAN), 9.2, 13.2
Carters (CRI), 9.3, 13.3
Scotts Miracle-Gro (SMG), 9.4, 13.5
Lumentum (LITE), 9.7, 13.8
Nucor (NUE), 9.7, 13.9
Schneider National (SNDR), 9.8, 14.0
Eagle Materials (EXP), 9,9, 14.2
Under Armour (UA), 10.1, 14.5
Albemarle (ALB), 10.3, 14.7
Skechers (SKX), 10.3, 14.8
Mattel (MAT), 10.4, 14.8
Sonoco (SON), 10.4, 14.9

See why Citi's quant team says that stocks are pricing in a recession more than any other asset class.