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14 Top Stocks for Rocky Markets

These solid, high-quality companies with predictable cash flows and good managers are well-equipped for today's rough market.

A photo illustration of author Susan Dziubinski.
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Investors may be rethinking what they consider to be top stocks these days. Until recently, many would define top stocks as the stocks of innovative companies—largely in the technology and communications sectors—that were changing the way we work and play. Like Apple (AAPL). Or Alphabet (GOOGL). The stocks of these companies led the market, chalking up remarkable gains.

Then came inflation. And rising interest rates. And talk of an economic slowdown. The stocks of many innovators in the technology and communication sectors—most of which were terribly overpriced—came crashing down in 2022.

During periods of economic and market uncertainty, investors might consider stocks from companies that few would call "innovative." Rather, these companies are reliable and are likely to withstand market uncertainty. Many might even call them boring.

What Are the Qualities of Top Stocks for Rocky Markets?

To find companies that are poised to withstand today's economic climate, we looked for companies that our analysts cover with the following traits:

They have significant competitive advantages: Companies with Morningstar Economic Moat Ratings of wide have unmatched advantages that should allow them to fend off their competitors and outearn their costs of capital for the next 20 years. By their very natures, wide-moat companies are reliable in terms of their businesses—think of them as "steady Eddies."

They are maintaining or growing those competitive advantages: To qualify, a company needs to be maintaining or growing its competitive advantages, not facing impossible-to-overcome headwinds that may ultimately threaten its moat.

They have reasonably certain cash flows: Morningstar designates a company as having a "low" uncertainty score if it enjoys sales predictability, modest operating and financial leverage, and limited exposure to contingent events. As a result of these factors, we can more confidently estimate the future cash flows of these companies—and therefore have high confidence in our fair value estimates of their stocks.

They're run by good managers: Lastly, we tossed out companies with Morningstar Capital Allocation Ratings of Poor, preferring to ride along with management teams that have proven records of being adept capital allocators.

The Top Stocks for Rocky Markets

These companies all have significant competitive advantages that are stable or growing, reasonably predictable cash flows, and good managers. 

  1. Clorox (CLX)
  2. Coca-Cola (KO)
  3. Colgate-Palmolive (CL)
  4. Dominion Energy (D)
  5. Johnson & Johnson (JNJ)
  6. McCormick (MKC)
  7. Nestle (NSRGY)
  8. Novartis (NVS)
  9. Otis Worldwide (OTIS)
  10. PepsiCo (PEP)
  11. Procter & Gamble (PG)
  12. Reckitt Benckiser Group (RBGLY)
  13. Roche Holding (RHHBY)
  14. Unilever (UL)

Not all of these top stocks are buys today according to our Morningstar Ratings, but given the market's volatility, they may be tomorrow. Those stocks on the list that aren't in buying range now are therefore excellent watchlist candidates. Here's a little bit more about each top stock and whether we think it's a good buy today. All data is as of May 20, 2022.

Clorox

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Household and Personal Products

Currently trading at a 4-star level, we think Clorox's stock is undervalued relative to our $161 fair value estimate. Like others in its industry, Clorox is facing a surge in costs. However, given the brand strength that the company possesses, Clorox will likely be able to pass along at least some of those additional costs to consumers, and we expect management to continue to invest in innovation and marketing and thereby reinforce the company's already wide economic moat, says Morningstar director Erin Lash. We also think Clorox management is exceptionally adept when it comes to managing the balance sheet, shareholder distributions, and investments.

Coca-Cola

  • Morningstar Rating: 2 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Beverages–Non-Alcoholic

Carrying a 2-star rating, we think Coke stock is overvalued today when compared with our $58 fair value. With leading brands and significant cost advantages, we think that Coke possesses significant pricing power and negotiating leverage with suppliers that will continue to be particularly valuable as inflation persists, says Morningstar analyst Chris Owen. We think the company's competitive advantages are strong and its management is exemplary thanks to its solid balance sheet, positive track record of investment, and fair shareholder distributions.

Colgate-Palmolive

  • Morningstar Rating: 3 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Household and Personal Products

We think Colgate stock is about fairly valued today, with shares trading near our $75 fair value estimate. Inflation and supply chain bottlenecks torpedoed margins in the first quarter, but we think Colgate is pursuing a sound approach to boosting profits over time, says Lash. In particular, we think Colgate is laser focused on improving the agility of its operations, which will allow it to proactively respond to changes in supply and demand longer term, she notes. Like others here, we think Colgate management is exemplary when it comes to capital allocation.

Dominion Energy

  • Morningstar Rating: 3 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Utilities–Regulated Electric

Dominion Energy stock is fairly valued today; we think shares are worth $82. The majority of Dominion's earnings are derived from regulated electric and gas utilities with constructive state regulation in Virginia, Utah, Ohio, and the Carolinas, says Morningstar senior analyst Andrew Bischof. Dominion has accelerated its capital expenditure growth program, with plans to invest $37 billion of growth capital over the next five years, with 90% of that sum focused on decarbonization.

Johnson & Johnson

  • Morningstar Rating: 2 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Drug Manufacturers–General

We think Johnson & Johnson stock is overvalued today, as shares trade above our $167 fair value estimate. The company is a leader across diverse healthcare segments, including medical devices, over-the-counter products, and several pharmaceutical markets, says Morningstar director Damien Conover. And unlike its peers, most of Johnson &Johnson's near-term patent losses include hard-to-make complex drugs, which should likely slow generic drug competition, he adds.

McCormick

  • Morningstar Rating: 1 star
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Packaged Foods

McCormick stock is significantly overvalued today, trading 43% above our $63 fair value estimate as of this writing. Higher costs and supply chain disruptions are headwinds for the leading player in the global spices and seasoning market. But we think McCormick can pass along higher costs to consumers, pursue cost savings, and ratchet back its discretionary spending to blunt the hit to profit, says Lash. Its position as the leading private-label spice and seasoning producer only sharpens its competitive edge.

Nestle 

  • Morningstar Rating: 2 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Packaged Foods

Nestle stock is slightly overvalued relative to our $110 fair value estimate. The largest food and beverage manufacturer in the world with a product portfolio spanning multiple categories (including brands Nestle, Perrier, and Purina) and markets, Nestle isn't immune to inflationary pressures. Nevertheless, management has done a good job with cutting costs, resetting legacy businesses, and investing in high-growth categories, says Morningstar senior analyst Ioannis Pontikis. Plus, there's a long runway for growth in emerging markets for the company.

Novartis 

  • Morningstar Rating: 3 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Drug Manufacturers–General

Novartis stock is about fairly valued, trading near our $91 fair value estimate. The drugmaker has an abundance of late-pipeline products and a solid marketed portfolio that can offset patent losses over the next few years, says Conover. With strong positions in many key therapeutic areas, Novartis is poised for steady long-term growth. Focusing largely in areas of unmet medical need should only strengthen Novartis' pricing power.

Otis Worldwide

  • Morningstar Rating: 3 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Specialty Industrial Machinery

Otis stock isn't a bargain today: Shares are trading in line with our $73 fair value estimate as of this writing. We think Otis, the largest elevator original equipment manufacturer by revenue globally, has carved out a wide economic moat, thanks to its safety track record and reputation and its reliability for developer partners, says Morningstar director Denise Molina. Many contractors will forego the bells and whistles that other elevator original equipment manufacturers may offer in favor of the safest choice.

PepsiCo

  • Morningstar Rating: 3 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Beverages–Non-Alcoholic

Pepsi stock is trading around our $164 fair value estimate. As the top operator in global savory snacks and the second-largest name in the carbonated soft drink market, Pepsi's leading brands and cost advantages contribute to its wide economic moat. As with Coke, we think Pepsi has the pricing power and negotiating leverage with suppliers to successfully navigate inflationary challenges, says Owen. We also think that management has done an exceptional job of allocating capital.

Procter & Gamble

  • Morningstar Rating: 2 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Household and Personal Products

Procter & Gamble stock looks pricey to us, trading well above our $124 fair value estimate. With a portfolio of leading brands that includes Tide laundry detergent, Charmin toilet paper, and Pampers diapers, P&G is a leader across several personal-care segments and a valued partner for retailers, says Lash. Like its peers, P&G has been raising prices to help offset inflationary pressures, and it also has continued to spend on promoting the brand value of its products, which should allow the company to preserve its economic moat.

Reckitt Benckiser Group 

  • Morningstar Rating: 3 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Household and Personal Products

Reckitt Benckiser stock trades at a 3-star level as of this writing, suggesting that shares are fairly valued. Reckitt's portfolio includes a host of household and consumer health brands that maintain the number-one or -two positions in their categories globally, including Lysol, Finish, and Mucinex. Although its nutrition segment has benefited from its largest infant nutrition competitor in the United States undergoing a baby formula recall, this hasn't had an impact on our fair value estimate for the stock, says Morningstar analyst Diana Radu. We think the product portfolio is well positioned in categories that benefit from secular growth drivers across consumer health and hygiene.

Roche Holding 

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Drug Manufacturers–General

Trading at 5-star levels, Roche stock is significantly undervalued. Roche's drug portfolio and industry-leading diagnostics create significant and lasting competitive advantages. Although Roche's tiragolumab failed in a recent trial to treat non-small cell lung cancer, the firm has several growth drivers in drugs treating multiple sclerosis, hemophilia, and spinal muscular atrophy that will help the company maintain top-line growth and margin expansion, says Morningstar strategist Karen Andersen.

Unilever 

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Wide
  • Moat Trend: Stable
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Household and Personal Products

Also trading at 5-star levels as of this writing, Unilever stock is undervalued. The final household and personal products company on our list, Unilever's portfolio of brands includes Lipton teas, Knorr soups and sauces, and Axe and Dove skin products. Like others mentioned here, Unilever has been able to raise prices in the face of inflation and still enjoy robust consumer demand, even though it operates in some highly competitive categories in which the consumer has traditionally been price sensitive, says Morningstar director Philip Gorham.

How to Find Top Stocks

The companies whose stocks constitute this list share several qualities—solid competitive advantages, reliable cash flows, and good managers. But price matters: We suggest investors buy the stocks of these companies only when they can be bought for less than what they're worth. In our parlance, that means buying companies when their stocks are trading below our fair value estimates. For more about Morningstar's approach to choosing stocks, read Morningstar's Guide to Stock Investing

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