By Jacob Sonenshine

Plenty of stocks are still way down, despite the market's surge. They've essentially priced in a recession because of the Trump tariffs -- and they're ripe for buying.

That's why Morgan Stanley's chief U.S. equity strategist, Mike Wilson, screened for stocks that his clients should consider buying -- those that are already reflecting close to the worst in the economy.

Wilson focused on stocks in "cyclical" industries -- banking, manufacturing, transportation, and consumer discretionary, for example -- that are hardest hit when the economy falters.

Of those stocks, the strategist identified the ones that are still down by similar amounts to their average declines before recessions. An example: Industrial stocks on the S&P 500 dropped -- on average -- roughly 40%, looking at the recessions triggered by the 2008-09 financial crisis and the Covid pandemic in 2020.

Wilson correlated the stocks to the Institute of Supply Chain Management's manufacturing index. The names on his list have dropped enough to imply an ISM number of 43, a reading that indicates a mild recession. The latest figure was 49, down from 50.3.

These stocks, however, are higher-quality cyclicals. Though the sales and profits of these companies are sensitive to economic shifts, they have high profit margins, always generate cash flow, and have respectable balance sheets.

Right now, the idea is to buy stocks that have high upside if a recession doesn't come and limited downside both because they already reflect close to a worst-case scenario and have plenty of cash to whether any storm.

Of the 42 names on Wilson's screen, we're highlighting seven: Wells Fargo, Bank of America, Citigroup, Stanley Black and Decker, J B hunt Transportation, Mattel, and Tapestry.

We chose the seven for their long histories and their current prices. History is important because the stocks can show price reactions to recessions that Wilson based his data off of. As for current price, the seven are trading roughly flat to down from Friday's market close -- the prices that Wilson used.

Wells Fargo, Bank of America, and Citigroup are all down between 14% and 19% from this year's peaks. They've taken harder hits in the past, when they priced in more severe recessions, but one this year doesn't have to be severe, and they're still pricing in a true slowdown.

The stocks could rebound rapidly later this year. Trump is signaling a willingness to roll back tariffs, which could ultimately support business confidence and investment.

If inflation cools off, as the economy inevitably does, the Federal Reserve could cut interest rates to shore up growth. This would boost expectations for more loans, investment banking activity, trading, the banks' buybacks, and their earnings per share.

Stanley Black and Decker and J B hunt Transportation Services down 33% and 31%, respectively, from their peaks this year.

They're different companies -- Stanley makes tools and equipment, while Hunt hauls goods by truck -- but both make and transport fewer goods when demand in the economy drops. Analysts have already reduce this year's earnings estimates, but the stocks are already reflecting those lower profits, making them cheaper.

Two more: Mattel and Tapestry. They're down 29% and 21%, respectively, this year.

Mattel makes Barbie dolls and other toys, which parents buy less of when they're watching their wallets. Tapestry owns luxury retail lines Coach and Kate Spade. They haven't seen much change to earnings estimates. They probably will soon, but as long as those profit forecasts don't drop as harshly as their stocks have, the share will still look fairly cheap.

It's tough to know what to play these days with everything up in the air because of tariffs and what they might do to the economy.

Wilson's screen is a good starting point. Take these seven name and put them on your shopping list.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 29, 2025 14:02 ET (18:02 GMT)

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