The past year was a rough one for the stock market, but 2022 was a good year for defensive stocks as they held firm during the bear market.
The good news for long-term investors looking to put money to work in defensive stocks is that there are still plenty of cheap defensive stocks worth considering. Morningstar equity analysts see room for growth in a number of high-quality, defensive names such as Veeva Systems VEEV and Medtronic MDT.
To look for undervalued defensive stocks, we turned to the Morningstar US Defensive Super Sector Index, which measures the performance of stocks from traditionally defensive sectors such as utilities, consumer defensive, and healthcare.
In 2022, the index lost 3.6% for the trailing 12-month period, while the broader market fell 19.4%, as measured by the Morningstar US Market Index.
Of the 323 defensive stocks in the index, 156 are covered by Morningstar analysts. Of those, 73 were undervalued as of Dec. 31, 2022, compared with 75 at the end of 2021.
What Is a Defensive Stock?
Defensive stocks are normally resistant to economic cycles because their products are necessary in good times or bad. Consumer defensive companies are engaged in the manufacturing of food and beverages, household and personal products, packaging, and tobacco. Some consumer defensive companies provide education and training services. UnitedHealth Group UNH, Merck MRK, and PepsiCo PEP are among the largest companies in the defensive Super Sector index.
Defensive Stocks to Buy Now
We looked for the most undervalued stocks in the Morningstar US Defensive Super Sector Index that currently carry a Morningstar Rating of 4 or 5 stars. Then we looked for stocks that have earned a Morningstar Economic Moat Rating of wide in order to screen for companies with durable competitive advantages.
These were the 11 most undervalued stocks in the Morningstar Defensive Super Sector Index as of Jan. 2:
- Veeva Systems
- Medtronic
- Zimmer Biomet Holdings ZBH
- Dominion Energy D
- West Pharmaceutical Services WST
- Zoetis ZTS
- Constellation Brands STZ
- Clorox CLX
- Kellogg K
- Altria Group MO
- Estee Lauder Companies EL
The most undervalued defensive stock is Veeva Systems, trading at a 39% discount to the fair value estimate set by Morningstar analysts. The least undervalued on the list is Estee Lauder, trading at a 10% discount. Morningstar stock analysts believe that these 11 are high-quality and undervalued in the market.
Original article: https://www.morningstar.com/articles/1131991/11-undervalued-defensive-stocks-for-2023
