10 Recession Stocks to Buy Now: Morningstar

Related: 10 U.S. Stock Funds With Highest Excess Returns: Morningstar

Talk of recession dominated the Morningstar Investment Conference last month in Chicago, Susan Dziubinski, an investment specialist at the firm, reported in a blog post on Tuesday. She said her colleague, senior U.S. economist Preston Caldwell, considers a recession in the next 12 months quite possible, though one is likely to be short-lived.

Given the prospect of a recession this year, Dziubinski said investors might consider adding recession stocks to a diversified portfolio. These are stocks of companies whose products and services will remain in demand regardless of the economic climate.

Moreover, recession-proof companies tend to be financially healthy and highly profitable. They often have competitive advantages that allow them to maintain reliable cash flows over time, regardless of what is happening with the economy. As a result, shares of these companies can be good stocks to own during a recession.

Investors can find recession-proof stocks in Morningstar’s defensive Super Sector, which includes industries that are relatively immune to economic cycles like health care, consumer defensive and utilities.

These stocks that have durable competitive advantages, or economic moats, which means that they are more reliable than no-moat companies in terms of their businesses. Wide-moat companies are financially healthy and highly profitable — desirable qualities in a fraught economy.

Recession-proof stocks have low or medium Morningstar uncertainty ratings, which represents the predictability of a company’s future cash flows. As such, Dziubinski wrote, Morningstar has a high degree of confidence in its fair value estimates of stocks from companies with low and medium uncertainty ratings.

See the gallery for the 10 most undervalued stocks in Morningstar analysts’ coverage that meet the firm’s definition of recession resistance, as of May 5.

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