Stocks have been nothing if not volatile this year, and with good reason.
“Investors today are concerned about rising interest rates, hot inflation, and economic uncertainty,” Susan Dziubinski, director of content for Morningstar.com, wrote in a commentary.
“During tumultuous times, some investors may be looking for stocks that are reliable, for companies that are likely to withstand economic uncertainty,” she noted.
So how do you find these stocks?
“First, focus on companies that have significant competitive advantages that should allow them to fend off competitors in even the toughest times,” Dziubinski said. “And these competitive advantages should be stable or growing.”
Second, “the companies should have reasonably certain cash flows, sales predictability, and modest leverage,” she said. “These companies should be run by good managers. And their stocks should be trading below what they're worth to provide a margin of safety.”
Using those standards, she chose household cleaning products company Clorox (CLX), Swiss drug company Roche (RHHBY) and U.K. consumer products company Unilever (UL).
Morningstar’s Take on Clorox
Morningstar analyst Erin Lash assigns the company a wide moat and puts fair value for the stock at $161. It recently traded at $140.05.
“The pandemic prompted consumers to scour the shelves for Clorox's fare, boosting sales,” she wrote in a commentary.
“And even as volume growth is decelerating, we don’t think consumers are turning their backs on Clorox’s cleaning and disinfecting products, as sales remain well above where they were before the pandemic.”
While Clorox is facing a surge in costs, it will likely be able to pass along at least some of those additional costs to consumers, Lash said.
Morningstar’s Take on Roche
Morningstar analyst Karen Andersen gives it a wide moat and puts fair value for the stock at $55. It recently traded at $39.93.
“We think Roche's drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages,” she wrote in a commentary.
“As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global healthcare into a safer, more personalized, and more cost-effective endeavor.”
Further, “Roche's biologics focus and innovative pipeline are key to the firm's ability to maintain its wide moat and continue to achieve growth as current blockbusters face competition,” Andersen said.
Morningstar’s Take on Unilever
Morningstar analyst Philip Gorham assigns the company a wide moat. He puts fair value for the stock at $56. It recently traded at $44.50.
“Trian Partners … has accumulated a 1.5% stake in Unilever and taken a seat on the board, in a move that we believe could finally be the catalyst to unlock value at Unilever,” he wrote in a commentary.
“It is little wonder shareholders are excited. Trian Partners has form when it comes to revamping consumer products manufacturers,” such as Procter & Gamble (PG), Gorham said.
Unilever has raised prices to deal with inflation and still enjoys strong consumer demand, he noted.
The author of this story owns shares of Unilever.
