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10 Stocks for a Recession

These undervalued stocks come from high-quality companies in defensive sectors.

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Depending who you talk to, we may or may not be in a recession. The textbook definition of an economic recession is two consecutive quarters of decline in gross domestic product, which we’ve experienced in 2022. However, other economic indicators that often fall during recession—including employment growth—have trended up so far this year.

“While a recession isn’t here yet, growth is slowing,” says Morningstar’s head of U.S. economics Preston Caldwell. Morningstar has pulled back its near-term GDP forecasts to 1.6% in 2022 and 1.0% in 2023 and expects growth to rebound in 2024.

Given all the talk of a U.S. recession—current or perhaps impending—investors may be thinking about adding some recession-resistant stocks to their portfolios.

What Are Recession-Resistant Stocks?

Recession-resistant stocks are stocks of companies whose products and services consumers will continue to purchase no matter the economic climate. In a slowing economy, consumers will generally still fill their prescriptions, seek medical care, practice good hygiene, and enjoy their favorite beverages and snacks. They’ll also continue to pay for running water, electricity, and gas to heat their homes.

In addition, recession-proof companies tend to be financially healthy and highly profitable—two qualities that are prized when economic times get tough. Such companies often have competitive advantages that allow them to maintain reliable cash flows over time, regardless of what’s going on in the economy.

How to Find Recession-Proof Stocks

Stocks that meet this definition of “recession resistant” often share these qualities.

  • These stocks land in Morningstar’s defensive Super Sector: This Super Sector includes industries that are relatively immune to economic cycles: healthcare, consumer defensive, and utilities.
  • These stocks earn wide Morningstar Economic Moat Ratings: Stocks that have durable competitive advantages, or economic moats, are by their very natures more reliable than no-moat companies in terms of their businesses. Wide-moat companies are financially healthy and highly profitable, two qualities that are prized when economic times get tough.
  • These stocks have Low or Medium Morningstar Uncertainty Ratings: The Uncertainty Rating represents the predictability of a company’s future cash flows. As such, we have a pretty high degree of confidence in our fair value estimates of stocks from companies with Low and Medium Uncertainty Ratings.

10 Undervalued Stocks for a Recession

These were the 10 most undervalued stocks as of Oct. 10, 2022, that Morningstar’s analysts cover and fit our definition of recession resistant.

  1. Anheuser-Busch InBev BUD
  2. Bayer BAYRY
  3. GSK GSK
  4. Zimmer Biomet Holdings ZBH
  5. Imperial Brands IMBBY
  6. Medtronic MDT
  7. Sanofi SNY
  8. British American Tobacco BTI
  9. Roche Holdings RHHBY
  10. Dominion Energy D

Here’s a little bit about each of these stocks, along with some key Morningstar metrics.

Anheuser-Busch InBev

  • Price/fair value: 0.50
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Consumer Defensive

Anheuser-Busch InBev stock is a buy, trading 50% below our fair value estimate. The largest brewer in the world, AB InBev benefits from a significant cost advantage relative to its competitors, which creates meaningful barriers to entry, and therefore provides a substantial competitive advantage, or wide economic moat, says Morningstar director Philip Gorham. We think AB InBev stock is worth $90.

Bayer

  • Price/Fair Value: 0.58
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

Bayer stock is selling 42% below what we think it’s worth. The German healthcare and agriculture conglomerate has carved out a wide economic moat largely on the strength of its healthcare group, with key drugs in hemophilia and ophthalmology, as well as a consumer business that includes brands such as Aspirin and Aleve, says Morningstar sector director Damien Conover. We give the stock a $20 fair value.

GSK

  • Price/Fair Value: 0.60
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

GSK stock looks mispriced, as shares trade 40% below what we think they’re worth. GSK is one of the largest pharmaceutical and vaccine companies worldwide by total sales. Patents, economies of scale, and a powerful distribution network support the drugmaker’s wide economic moat rating, argues Morningstar’s Conover. We think GSK stock’s fair value is $50.

Zimmer Biomet Holdings

  • Price/Fair Value: 0.62
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

Zimmer Biomet stock looks cheap by our metrics, selling 38% below our fair value estimate. Zimmer manufactures orthopedic reconstructive implants. We award the company a wide economic moat rating thanks in part to the high switching costs that orthopedic surgeons would face if they transitioned to another company’s instrumentation, says Morningstar senior analyst Debbie Wang. We think Zimmer Biomet stock is worth $175.

Imperial Brands

  • Price/Fair Value: 0.62
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Consumer Defensive

Imperial Brands stock trades 38% below our fair value estimate. One of the world’s largest international tobacco companies, Imperial Brands benefits from tight government regulations that make barriers to entry almost insurmountable, says Morningstar’s Gorham. That and brand loyalty support the company’s wide economic moat. We assign Imperial Brands stock a $36 fair value estimate.

Medtronic

  • Price/Fair Value: 0.64
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

Medtronic stock is 36% undervalued. One of the largest medical device companies focused on therapeutic medical devices for chronic diseases, Medtronic (like Zimmer) enjoys high switching costs. Its intellectual property and relationship with physicians also contribute to its wide moat, says Morningstar’s Wang. We assign Medtronic stock a $129 fair value estimate.

Sanofi

  • Price/Fair Value: 0.68
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

Sanofi stock is about 32% undervalued, according to our metrics. The drugmaker maintains a wide lineup of branded drugs and vaccines—including immunology drug Dupixent—as well as a robust pipeline. Growth of existing products and new product launches should offset upcoming patent losses, argues Morningstar’s Conover. We assign Sanofi stock a fair value estimate of $57.

British American Tobacco

  • Price/Fair Value: 0.74
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Consumer Defensive

British American Tobacco stock is cheap, trading 26% below our fair value estimate. One of the two largest listed global tobacco companies, British American Tobacco possesses a strong franchise and cost advantages, which have led to a wide economic moat rating, says Gorham. We think British American Tobacco stock is worth $50 per share.

Roche Holding

  • Price/Fair Value: 0.74
  • Morningstar Uncertainty Rating: Low
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

Roche stock is 26% undervalued, according to our measures. Roche is a biopharmaceutical and diagnostic company that holds the leadership position in both oncology therapeutics and in vitro diagnostics; as a result, the drugmaker earns a wide economic moat rating, says Morningstar sector strategist Karen Andersen. We assign Roche stock a $55 fair value estimate.

Dominion Energy

  • Price/Fair Value: 0.79
  • Morningstar Uncertainty Rating: Low
  • Morningstar Economic Moat Rating: Wide
  • Sector: Utilities

Dominion Energy stock appears to be about 21% undervalued according to our metrics. The integrated energy company operates in a constructive regulatory environment and is pursuing a sizable growth plan in the next five years focused on decarbonizaton, says Morningstar senior analyst Andrew Bischof. We assign Dominion Energy stock a fair value estimate of $82.

How to Find Additional Recession-Proof Stocks

Investors who want to look beyond this list of recession-resistant stocks can do a few things.

  • Review Morningstar’s lists of all consumer defensive sector stocks, healthcare sector stocks, or utilities sector stocks to find ideas to investigate further.
  • Create your own screen of stocks using the Morningstar Investor screener. You can limit your search to just one or two recession-proof sectors or even drill down to particular industries. You can widen your search beyond wide-moat stocks and dip into narrow-moat stocks, too. And you can also screen on stocks based on other valuation metrics that matter to you, such as price/earnings and free cash flow.
  • Consider undervalued stocks from Morningstar’s Best Companies to Own List. The companies on this list don’t all cluster in recession-resistant industries. However, these companies nevertheless offer some certainty in terms of their cash flows and fundamentals—and they’re run by adept management teams. Best of all, their stocks are on sale and may therefore appeal to long-term investors looking for stock ideas regardless of the economic climate.

Remove the guesswork and make informed decisions faster. Morningstar Investor’s stock ratings, analysis, and insights are all backed by our transparent, meticulous methodology. Learn more and start a seven-day free trial today.

Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.