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.

What Are Recession-Resistant Stocks?

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.

How to Find Recession-Resistant Stocks

Stocks that meet this definition of “recession resistant” often share these qualities.

  • These stocks land in Morningstar’s defensive Super Sector: This Super Sector includes industries that are relatively immune to economic cycles: healthcare, consumer defensive, and utilities.
  • These stocks earn wide Morningstar Economic Moat Ratings: Stocks that have durable competitive advantages, or economic moats, are by their very natures more reliable than no-moat companies in terms of their businesses. Wide-moat companies are financially healthy and highly profitable, two qualities that are prized when economic times get tough.
  • These stocks have Low or Medium Morningstar Uncertainty Ratings: The Uncertainty Rating represents the predictability of a company’s future cash flows. As such, we have a pretty high degree of confidence in our fair value estimates of stocks from companies with Low and Medium Uncertainty Ratings.

Three Undervalued Stocks for a Recession

These were the three most undervalued stocks as of Aug. 1, 2022, that Morningstar’s analysts cover that fit our definition of recession resistant.

  1. Anheuser-Busch InBev BUD
  2. Imperial Brands IMBBY
  3. Zimmer Biomet Holdings ZBH

Here’s a little bit about each of these stocks, along with some key Morningstar metrics.

Anheuser-Busch InBev

  • Price/fair value: 0.59
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Consumer defensive

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

  • Price/Fair Value: 0.62
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Consumer defensive

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. T

hat and brand loyalty support the company’s wide economic moat.

We assign Imperial Brands stock a US$36 fair value estimate.

Zimmer Biomet Holdings

  • Price/Fair Value: 0.63
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Sector: Healthcare

For Morningstar’s full list of 10 undervalued, high-quality, defensive stocks for a recession, click here.

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