While the economy has largely withstood the Federal Reserve’s interest-rate increases so far, some experts remain concerned about the possibility of recession.
“Upbeat inflation data makes a soft landing feasible, but a recession may happen anyway,” said Preston Caldwell, chief U.S. economist for Morningstar, assessing the next six months. “The probability of a formal recession being declared is around one-third.”
Morningstar put together a list of the 10 most undervalued recession-resistant stocks. It measures valuation according to its analysts’ fair value estimates.
Recession-resistant companies are those “whose products and services consumers will continue to purchase no matter the economic climate,” writes Morningstar investment specialist Susan Dziubinski.
“In a slowing economy, consumers will generally still fill their prescriptions, seek medical care, practice good hygiene, and enjoy their favorite beverages and snacks,” she said. “They’ll also continue to pay for running water, electricity, and gas to heat their homes.
Furthermore, “recession-proof companies tend to be financially healthy and highly profitable — two qualities that are prized when economic times get tough,” Dziubinski said.
The Morningstar list includes stocks in industries that are relatively immune to economic cycles: healthcare, consumer defensive, and utilities. The selections have wide moats, or durable competitive advantages.
Budweiser
Most Undervalued Stocks Listed
Here’s the roster, in order of which stocks were most undervalued compared to Morningstar fair value estimates as of Jan. 20. The most undervalued is listed first.
- Anheuser-Busch InBev (BUD), the Belgian beer company
- Roche Holding (RHHBY) , the Swiss drug company
- GSK (GSK), the U.K. drug company
- Zimmer Biomet (ZBH), a medical device company
- Medtronic (MDT), a medical equipment company
- Ambev (ABEV), the beer company
- Imperial Brands IMBBY, a U.K. tobacco company
- Bayer (BAYRY), a German healthcare company
- British American Tobacco (BTI), a U.K. tobacco company
- Dominion Energy (D), a utility
Anheuser-Busch: Morningstar analyst Philip Gorham puts fair value for the stock at $90. It recently traded at $60.30.
“Anheuser-Busch InBev reported third-quarter results that were broadly consistent with our forecasts,” he wrote in a commentary.
“At a time when consumer products companies are passing through material cost increases to consumers, who are already facing higher interest rates and energy prices, we regard an in-line quarter as good news,” Gorman wrote.
Moreover, “the scale of the company’s business and its strong relationships with its vendors make this a high-quality franchise,” Gorham said.
Healthcare Ranks High On The List
Roche: Morningstar analyst Karen Andersen puts fair value for the stock at $57. It recently traded at $40.
Excluding covid products, third-quarter revenue grew -- 2% in the pharmaceutical category and 7% in diagnostics, she wrote in a commentary.
That “demonstrates the strength of the firm’s underlying portfolio, despite continuing pressure from biosimilar versions of several drugs,” Andersen said.
“Following Regeneron’s positive data for high-dose Eylea [a macular degeneration drug], we remain bullish on the launch of Roche’s new ophthalmology drug Vabysmo as well as new blood cancer launches that should begin to drive sales in 2023.”
