Hi, I'm Susan Dziubinski with Morningstar. As recession worries rattle markets, stock investors may be looking for companies that can withstand an economic slowdown. Such "recession resistant" companies share a few traits.
First, recession-proof companies typically provide goods and services that consumers will continue to pay for no matter what's going on in the economy. For example, we're likely to continue to fill our prescriptions, enjoy our favorite beverages, and pay our electric bills, even in a recession. The healthcare, utilities, and consumer defensive sectors are considered recession-resistant.
3 Recession-Resistant Stocks
These wide-moat companies' stocks are undervalued. Data as of Oct. 6, 2022.
- Anheuser-Busch InBev BUD
- Roche Holding RHHBY
- Clorox CLX
Recession-resistant companies also tend to be financially healthy and highly profitable. They usually have competitive advantages that allow them to maintain reliable cash flows over time in any economic climate.
Given today's market volatility, investors interested in buying stocks of recession-resistant companies should pay attention to valuation. At Morningstar we think many defensive stocks are overpriced today. Here are three that still look undervalued to us.
The first is Anheuser-Busch InBev. AB InBev is the largest brewer in the world. It benefits from cost advantages relative to its competitors, which provides the company with what we'd call a wide economic moat, or meaningful competitive advantages. The stock looks significantly undervalued to us; we think the company's ADRs are worth $90 apiece.
Next is Roche Holding. Roche is a biopharmaceutical and diagnostic company. It holds the leadership position in both oncology therapeutics and in vitro diagnostics, and those leadership positions give the company a competitive advantage. We think the company's ADRs are worth $55.
And last, there's Clorox. Unlike the other stocks mentioned here, Clorox isn't a screaming bargain; it's trading closer to fair value. But it boasts sizable competitive advantages: 80% of its U.S. sales are from brands that are number one or two in their categories. The company's brands include Clorox of course, but also familiar names like Kingsford, Brita, Hidden Valley, and Glad. We think the stock is worth $160.
For more recession-proof stock ideas, read "10 Stocks for a Recession." And be sure to subscribe to Morningstar's channel or visit Morningstar.com.
Watch "Where to Invest Your Money in Q4 2022" for more investment ideas.