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Our Picks

Defensive Stocks on Sale

These high-quality names are trading at 5-star levels.

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Recession worries have once again gripped the stock market. U.S. bond yields are falling, the yield curve is inverting, and pundits are prognosticating. Of course, Morningstar isn’t in the business of predicting where the market is headed. Still, equities have been in rally mode for most of the past decade. It’s not unreasonable to suggest that playing a little defense right now might be a good idea.

As such, we’re looking for some undervalued defensive stock picks.

Specifically, we screened for:

Stocks in Morningstar’s Defensive Super Sector: This Super Sector includes industries that are relatively immune to economic cycles: healthcare, consumer defensive, and utilities. Companies in these sectors provide goods and services that we need in both good and bad times. If the economy slows, we’ll still fill our prescriptions, seek medical care, practice good hygiene, and enjoy our favorite beverages and snacks.

Stocks with wide or narrow Morningstar Economic Moat Ratings: Stocks that have competitive advantages--those that have economic moats--are by their very natures more reliable than no-moat companies in terms of their businesses. Moaty companies are financially healthy and highly profitable--two qualities that are prized when economic times get tough.

Stocks trading at 5-star levels: Stocks at this rating level are significantly undervalued relative to our fair value estimates, providing a substantial margin of safety.

Stocks with low or medium Morningstar Uncertainty Ratings: In short, 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 companies with low and medium uncertainty ratings. (Long version: The uncertainty rating captures a range of likely potential intrinsic values for a company based on the characteristics of the business underlying the stock, including such things as operating and financial leverage, sales sensitivity to the economy, product concentration, and other factors. If the range of potential intrinsic values is narrow, the company earns a low uncertainty rating. If the range is great, the company earns a high uncertainty rating.)

Nine stocks made the cut.

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