Recession Is Looming, UBS Says It's Time For Quality Stocks. Here Are 10 To Consider.

As market volatility continues and a recession seems more probable, investors should focus on quality stocks, UBS advised in a paper this week.

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The statement came before the Federal Reserve's benchmark rate increase of 25 basis points on Wednesday, but UBS already had predicted that the central bank will keep raising rates in their monthly update.

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After Fed Chair Jerome Powell's remarks following the rate increase decision, the markets rapidly turned negative. Powell stated that despite tighter credit conditions, the reserve bank had no immediate intentions to decrease interest rates. The S&P 500 and Nasdaq Composite both fell more than 1% on Wednesday, while the Dow Jones Industrial Average dropped more than 500 points.

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The Fed is in a difficult situation. In addition to managing inflation, it is attempting to prevent further consequences from the banking system's disarray. Because of this, UBS believes that markets will continue to be erratic, and that investors should look to quality names to weather the storm.

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UBS head of U.S. equities David Lefkowitz stated, "We urge investors focus on parts of the market whose earnings growth is more resilient." "In this setting, our tactical themes are concentrated on high quality businesses, those with pricing power, or those tied to lengthy development drivers that are more protected from economic growth."

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UBS highlighted four equity baskets it which investors should focus on, including one titled "Time for quality," which is made up of businesses that are considered to be of "high quality" because they have impressive returns on capital invested and frequently outperform their peers when the economy is slowing and getting close to a recession.

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The following ten people made UBS' list.

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• Merck & Co Inc

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• Lockheed Martin Corp

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• Bank of America Corp

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• American Express Co

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• Costco Wholesale Corp

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• Oracle Corp

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• Microsoft Corp

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• Starbucks Corp

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• Exxon Mobil Corp

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• McDonald’s Corp

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McDonald's made the list, and UBS noted that its operations are improving as a result of a leaner cost structure. The company's capacity to embrace new technology, and its well-received promos and higher-quality menu items, were also praised by UBS.

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The S&P 500 has outperformed the fast food industry's stock this year. Nonetheless, the stock has increased 14% over the past 12 months, compared to a 10% decline in the overall market index.

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Exxon Mobil, a major oil business, was also included on the list, and UBS cited the firm's unusually strong financial sheet as a reason. Cash flow, according to UBS, should increase as the business completes more projects.

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Meanwhile, Starbucks should gain a lot from China's reopening and the relaxing of Covid-19 lockdown regulations there. Starbucks is successfully combating inflation, according to UBS, by using "targeted pricing, operating savings, and prioritizing discretionary spend."

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The coffee chain's stock has increased by more than 17% during the past six months, although shares are flat for the year.

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Microsoft was listed as well. This follows the introduction of the chat box into Bing and the popularity of OpenAI's ChatGPT. UBS emphasized the company's stable profit margins and predicted that it would continue to score victories as it expanded more into the cloud industry.

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In 2023, Microsoft stock has surged more than 16% higher.

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Costco was singled out by UBS as having great cash flow during recessions. According to UBS, the company already enjoys a number of "low costs advantages" that are supported by its enormous scale and straightforward shop designs. Despite losing nearly 20% of its value in 2022, Costco stock is now up 7.6% this year.

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Another "time for quality" stock on the UBS list that emphasizes profitability and EPS growth is Bank of America. The company warned that while some macroeconomic headwinds would limit recent sales growth, the ongoing increase in borrowing costs might be able to halt more generalized unfavorable trends.

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The UBS list also included shares in Merck, American Express, Oracle, and Lockheed Martin.