10 Good Stocks for Riding Out a Recession: Morningstar

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A U.S. recession is a top-of-mind concern of investors. In fact, there are contradictory signals about whether the economy is in recession, according to a new blog post by Susan Dziubinski, director of content at Morningstar.com.

The U.S. has experienced two consecutive quarters of decline in GDP — the textbook definition of an economic recession — but other economic indicators that often fall during recession, such as employment growth, have trended up so far in 2022.

“While a recession isn’t here yet, growth is slowing,” Dziubinski’s colleague, Preston Caldwell, head of U.S. economics, said in the post. Caldwell noted that Morningstar has pulled back its near-term GDP forecasts to 1.6% in 2022 and 1% in 2023 and expects growth to rebound in 2024.

Recession-Resistant Stocks

Whether the U.S. is in recession or one is on the horizon, investors may be considering adding some recession-resistant stocks to their portfolios. What would those look like?

For one thing, they are the stocks of companies whose products and services consumers will continue to buy, whatever the economic climate, according to Dziubinski.

In a slowing economy, consumers will generally still fill their prescriptions, seek medical care, practice good hygiene and indulge in their favorite beverages and snacks. They will also continue to pay for running water.

Recession-resistant stocks often share several qualities, according to Dziubinski. For one, they land in Morningstar’s defensive Super Sector, which includes industries that are relatively immune to economic cycles.

In addition, analysts give them wide Morningstar Economic Moat Ratings, meaning they have durable competitive advantages — economic moats — and so are more reliable than no-moat companies in terms of their businesses. They are financially robust and highly profitable, which investors prize when the economy turns sour.

The third quality recession-resistant stocks share is low or medium Morningstar Uncertainty Ratings, which represent the predictability of a company’s future cash flows. Low and medium uncertainty ratings give analysts a reasonably high degree of confidence in their fair value estimates of stocks from those companies.

See the gallery for the 10 most undervalued stocks as of Oct. 10 that Morningstar’s analysts cover and fit the firm’s definition of recession-resistant.

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