Here are Morgan Stanley's economic comeback plays

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Stocks closely tied with economic health have major upside as the U.S. the economy reopens and recovers from the coronavirus downturn, according to Morgan Stanley.  

The Wall Street firm said the recent cyclical led bounce off the trough has been strong for a relatively short period, but the relative performance of the group has barely moved from a longer term perspective. 

Stocks that benefit from the economy reopening have led the market higher this month. The technology heavy Nasdaq Composite hit an all-time high from February, the first of the major averages to make back all of its losses from the Covid-19 sell-off.  The S&P 500 is less than 1% away from breaking even on the year with the Dow Jones Industrial Average trailing the flat line about 4%.

"A V-shaped economic recovery is looking more likely, implying that the necessary conditions for cyclical outperformance are falling into place," Morgan Stanley equity strategist Adam Virgadamo said in a note to clients. "We expect accelerating GDP growth, inflation & income growth, along with bottoming rates, PMIs, and consumer sentiment to support cyclicals."

Morgan Stanley created a list of cheap stocks for clients with high sensitivity to changes in economic gauges and inflation. The listed stocks have high correlations to PMI changes, have high correlations to inflation expectations and have low relative valuations. 

"Specifically we screened US equities for stocks in the top quartile of correlation to either PMI or breakeven changes, with Price to Book relative to the market in the lowest quartile of their own history," said Virgadamo. 

Morgan Stanley has an overweight rating on all the listed stocks. Here's a list of economic comeback plays.