Picking Cheap Stocks to Buy: Morningstar’s Recession Investing Strategy

  • The S&P 500 and Nasdaq have both fallen more than 20% this year as investors worry about a recession.
  • But pockets of the market now look significantly undervalued, according to Morningstar.
  • The research firm has highlighted 13 stocks to buy because they will outperform in a bear market.

Both the S&P 500 and the Nasdaq are officially in


bear market

territory.

After providing spectacular returns in 2021, the two indices have both fallen more than 20% since the start of the year, as institutional and retail investors feared that rising interest rates could trigger a recession.

But even a bear market creates investment opportunities, according to Morningstar. The investment firm recently identified 13 stocks that now appear undervalued.

“It’s definitely been a tough year for the market so far,” Morningstar’s chief U.S. market strategist Dave Sekera said in a recent interview. “Having said that, I think selling has recently gone quite blind as even high-quality companies have been caught up in this latest downdraft.”

Some investors are now focusing on timing the market bottom. Sekera warned that it is difficult to predict when stocks will rally at this stage – but noted that signs that inflation is moving away from its 40-year high of 8.6% would likely trigger a rally.

“Markets are waiting for more clarity on a few different factors,” he said. “The most important thing will be when inflation starts to moderate and when do we see some stabilization in the US economy.”

But in the meantime, investors should stock up on high-quality stocks that could trade at a significant discount, according to Sekera.

“These are just great opportunities for investors who are focused on the long term,” he said. “With these stocks as low as they are, it gives those with an appetite for cash risk the opportunity to take advantage of it in today’s market.”

Here are Morningstar’s 13 undervalued stocks to buy:

Lee J. Murillo