10 Good, Cheap Stocks to Buy in a Recession: Morningstar

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Is the U.S. economy in recession? Opinions differ. For Preston Caldwell, Morningstar’s head of U.S. economics, the answer is no, at least not yet.

“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,” Caldwell wrote in a recent blog post.

Whatever the case, investors may be thinking about adding recession-resistant stocks to their portfolios, according to Susan Dziubinski, director of content at Morningstar.com. These are stocks of companies whose products and services consumers will continue to purchase no matter the economic climate.

Dziubinski notes that recession-resilient companies tend to be financially healthy and highly profitable, “two qualities that are prized when economic times get tough.”

These companies often have competitive advantages that allow them to maintain reliable cash flows over time, no matter what is going on in the economy.

At Morningstar, stocks that meet the definition of “recession resistant” tend to share several qualities. For one, they occupy the firm’s “defensive” Super Sector of industries that are relatively immune to economic cycles: health care, consumer defensive and utilities.

They also earn analysts’ wide Morningstar Economic Moat Ratings, meaning they have durable competitive advantages and are, by nature, more reliable that no-moat companies in terms of their businesses.

And recession-resistant companies have a low or medium Morningstar Uncertainty Rating, which represents the predictability of their future cash flows. According to Dziubinski, analysts are highly confident in their fair-value estimates of stocks from these companies.

See the gallery for the 10 most undervalued stocks that are covered by Morningstar analysts and fit the firm’s definition of recession resistant, as of Aug. 1.