Depending on 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 and consumer spending—have trended up so far this year.
Morningstar’s head of U.S. economics Preston Caldwell lands in the no-recession-yet camp, noting: “Recession risk is on the horizon, which is partly why we expect the Federal Reserve to start cutting rates in 2023 in order to prop up the economy.”
Given all the talk of a recession—current or perhaps impending—investors may be thinking about adding some recession-resistant stocks to their portfolios.
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-resilient 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.
Stocks that meet this definition of “recession resistant” often share these qualities.
These were the 10 most undervalued stocks as of Aug. 1, 2022, that Morningstar’s analysts cover that fit our definition of recession resistant.
Here’s a little bit about each of these stocks, along with some key Morningstar metrics.
Anheuser-Busch InBev stock is a buy, trading 41% 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 US$90.
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 director Philip Gorham. That and brand loyalty support the company’s wide economic moat. We assign Imperial Brands stock a US$36 fair value estimate.
Zimmer Biomet stock looks cheap by our metrics, selling 37% 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 orthopedic surgeons would face transitioning to another company’s instrumentation, says Morningstar senior analyst Debbie Wang. We think Zimmer Biomet stock is worth US$175.
Medtronic stock is 28% 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 senior analyst Debbie Wang. We assign Medtronic stock a US$129 fair value estimate.
Gilead Sciences stock is selling 26% below what we think its worth. Specializing in therapies to treat life-threatening infectious diseases, the drugmaker has carved out a wide economic moat thanks to its patent-protected HIV regimen and continued dominance in the hepatitis C market, notes Morningstar sector strategist Karen Andersen. We peg the stock with an US$81 fair value.
Roche stock is 25% 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 US$55 fair value estimate.
GSK stock looks mispriced, as shares trade 23% below what we think they’re worth. GSK is one of the largest pharmaceutical companies worldwide by total sales. Patents, economies of scale, and a powerful distribution network support the drugmaker’s wide economic moat rating, argues Morningstar sector director Damien Conover. We think GSK stock’s fair value is US$54.
British American Tobacco stock is cheap, trading 21% 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 Morningstar director Philip Gorham. We think British American Tobacco stock is worth US$50 per share.
Ambev stock appears to be about 21% undervalued according to our metrics. The largest brewer in Latin America by volume and one of the largest beer producers in the world, Ambev enjoys customer loyalty and cost advantages that provide the company with a wide economic moat, says Morningstar director Philip Gorham. We assign Ambev stock a fair value estimate of US$3.50.
Veeva stock trades 18% below our fair value estimate. The leading provider of cloud-based software solutions tailored to the life sciences industry, Veeva enjoys a wide economic moat rating: The time and expense of switching to a competing software solution is high and can come with substantial operating risks, says Morningstar sector director Damien Conover. We think Veeva stock is worth US$275.
The AMTD Digital stock has shot the lights out since its IPO in July. But why? Short answer – …
After a tumultuous period of low prices and production cuts, oil giants have roared back to pr…
We’re trimming our fair value estimate to US$535,000; stock undervalued.
Google parent company misses expectations in its latest second quarter results, but search adv…
The interest rate opportunities may not be priced into these stocks.
Make the most of the bear market by considering these cannabis companies trading at deep discounts.
How one court ruling cut a stock price in half.
How a glut in microchips will meet turbocharged demand.
Know your Togo from your Trinidad? A brief guide to how investors can tell their emerging from th…
Use our spreadsheet to calculate your personal rate of inflation.
Susan Dziubinski Director of Content for Morningstar.com
About Us
Connect With Us
Get Help
Terms of Use Privacy Policy
The Morningstar Star Rating for Stocks is assigned based on an analyst’s estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock’s fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn’t. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here
Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here