3 Solid Stock Picks for an Unsteady Market

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Investors today are concerned about rising interest rates, hot inflation, and economic uncertainty. During tumultuous times, some investors may be looking for stocks that are reliable, from companies that are likely to withstand economic uncertainty.

To find such companies, investors should focus on a few key things. First, focus on companies that have significant competitive advantages that should allow them to fend off competitors in even the toughest times. And these competitive advantages should be stable or growing. Next, the companies should have reasonably certain cash flows, sales predictability, and modest leverage. These companies should be run by good managers. And their stocks should be trading below what they're worth to provide a margin of safety.

One stock that fits that bill today is Clorox. Like others in its industry, Clorox is facing a surge in costs. Morningstar's analyst thinks Clorox will likely be able to pass along at least some of those additional costs to consumers, thanks to the company's strong brand. We also think Clorox management is exceptionally adept when it comes to managing the balance sheet, shareholder distributions, and investments. We think Clorox stock is undervalued relative to our $161 fair value estimate.

Another stock that fits the bill is Roche. Roche's drug portfolio and industry-leading diagnostics combined create significant—and sustainable—competitive advantages. Morningstar's analyst thinks 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. We think Roche stock is undervalued, trading below our $55 fair value.

Lastly, there's Unilever. Earlier in June, Trian Partners accumulated a 1.5% stake in the company and took a seat on the board. Morningstar's analyst thinks this move may finally be the catalyst to unlock value at Unilever, whose portfolio of brands includes Lipton teas, Knorr soups and sauces, and Axe and Dove skin products. Unilever has been able to raise prices in the face of inflation and still enjoy robust consumer demand. We think shares are undervalued, trading below our $56 fair value estimate.

For more stock ideas: 14 Top Stocks for Rocky Markets

Morningstar directors Philip Gorham and Erin Lash and strategist Karen Andersen provided the research behind this segment.