Shell PLC and ITV PLC are among the five FTSE 350 "quality stocks" that are still trading on "recessions discounts", according to UBS.
The number of European shares trading above their 10-year average is back below average and near to previous recession lows, the investment bank pointed out in a note on Tuesday.
Analyst consensus forecasts for earnings per share growth are continuing to rise and the UBS equity strategists said they "fear" that the EPS baked into current 12-month forward P/E ratios are "inflated and thus making valuations appear cheap and attractive to investors".
With the economic outlook for Europe worsening and their economist colleagues are now seeing an increased probability of a recession for the region, the strategists have screened for "top quality" stocks rated 'buy' or 'neutral' that are "still cheap after factoring in potential recession risks".
This screen looked for three factors for ideal stocks: first that their shares are trading below "fair value" on price-to-book; second, that the company passes through a quality filter that uses "traditional quality metrics to remove companies that are potentially vulnerable to an economic slowdown" and that the shares have a recession-adjusted relative P/E compared with the stocks' 10-year average relative P/E "to identify stocks with the most potential upside after factoring in earnings risks".
Shell was the highest-rated among FTSE-quoted names in the recession-adjusted relative P/E-versus-history screen, followed by ITV, Vodafone Group PLC (LSE:VOD), CRH PLC (LSE:CRH) and Coca Cola HBC AG (LSE:CCH).
Shell and CCH were best-rated on the quality metric, followed by CRH.
But the oil major was lowest for "potential EPS downside", at -41%, followed by ITV at -33%, Vodafone at -24%, CRH at -20%, and CCH seen as least worrisome at -17%.
All five are rated 'buy' by UBS.
Other 'buy'-rated European names on the list include Wienerberger, Eni, Maersk and HeidelbergCement.