Large-cap stocks are typically viewed as safe bets during times of volatility, but a number of Wall Street pros think small-cap stocks look increasingly attractive as recession risks mount. Small-cap stocks have often received less traction than their larger counterparts due to the former’s perceived earnings volatility, more domestic bias, and lower visibility. They are also often shunned during market volatility in favor of more stable options. But history suggests investors could be wrong. “Historically, recessions have tended to be good buying opportunities for small-cap stocks,” said Lori Calvasina, head of US equity strategy at RBC Capital Markets, in a July 22 note. “It also seems to us that small caps are already in deep economic trouble.” The broker believes small-cap stocks are “very close” to pricing in a recession, which shows “quite clearly” in valuations. It noted that small-cap stocks now look historically cheap relative to their large-cap counterparts, with the small-cap Russell 2000 Index trading in a price-to-earnings range that “tends to mark its bottom “. According to Christian Galipeau, senior market strategist at Putnam Investments, small-caps not only outperform during a recession, but also over a longer period after an economy emerges from the throes of a downturn. He observed that small-cap stocks tend to underperform large-cap stocks in the months leading up to and during a recession, and “for the next three years” when the economy exits a recession. Citigroup noted that small-caps were the first to falter as inflationary pressures took hold and now “could be the first to bounce.” Valuations for small-cap stocks suggest they are “significantly de-risked” and are pricing in recession fears. “Small-cap-large-cap trading is near post-financial crisis lows and relative valuation is not far from its 20-year low,” Citigroup strategists led by Scott Chronert said in a statement from July 26th. Bank of America’s Top Stock Ideas According to Bank of America, “much has changed” since the beginning of this year amid some developments: Fed policy, geopolitics, market volatility, runaway inflation and recession fears. “But volatility and regime change present opportunities, and we continue to see a supportive environment for stock selection,” Bank of America strategist Jill Hall wrote in a recent report. It found that stocks with reasonable margins and pricing power were rewarded in an environment of rising interest rates and inflation. The bank likes grocery supplier DoorDash, which, given its position as a third-party platform, isn’t directly exposed to commodity and grocery price inflation. The bank has a $90 target price for the stock, which closed at $72 on Monday for a potential upside of 20%. Bank of America also ranks Illinois-based Option Care Health as the name least exposed to labor cost pressures. The company could see further upside as it leverages improved free cash flow, Hall said. The bank’s $38 target price for the stock implies a potential upside of 11.8% from the stock’s close of around $34 on Monday. Read more Has the market bottomed? Here’s What Wall Street Says After US Stocks Rebound In July Is the US in a Recession? This strategist monitors 14 indicators Top tech analyst says this FAANG stock is at an “inflection point” — giving it 33% upside potential. Florida-based electronics manufacturer Jabil also made the list. The company is focused on end-markets that are seeing secular growth, as well as sectors like healthcare, which the bank sees as “generally recession-proof.” Shares closed at around $59 on Monday, up 40% from the bank’s $82 target price for the stock. Bank of America also likes chipmaker ON Semiconductor for its strong turnaround potential, superior product, and commitment to hyper-growth trends in electric vehicles. The bank has a price target of $80, which represents a potential upside of 25% from the stock’s close of around $64 on Aug. 1. Barclays also named a number of “high conviction” overweight small-cap stocks that it believes offer the potential for superior risk-adjusted returns. Bank favorites include cybersecurity firm CyberArk, biopharmaceutical company Sarepta Therapeutics and home builder Skyline Champion.