In a new report, UBS analyst Colin Langran discusses the buying opportunity that the firm sees in auto suppliers. According to Langran, the risk for top stocks is majorly skewed to the upside.

“The combination of improving earnings and lower valuations has created a compelling buying opportunity for select names,” he explains.

Langran notes that auto supplier stocks are down about 29 percent since last May, despite UBS’s 13 percent 2016 EPS growth forecast.

UBS now believes the potential upside is now 2.8 times larger than the downside for the firm’s Buy-rated suppliers. UBS believes its top stocks are underpriced by up to 60 percent, but would fall as little as 20 percent in a global recession scenario.

In picking out top names, UBS looks for suppliers with low leverage, secular growth, strong management and margin expansion opportunities.

UBS analysts are…

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