10 Stocks That Could Rise in Market Decline

The premise of this approach is that these high-quality stocks are less volatile and have lots of potential upside when a rising tide lifts all the boats.

Morningstar analysts assign fair-value targets based on discounted cash-flow models. Their model assumes that the stock's value is equal to the total of the free cash flows the company is expected to generate in the future, discounted back to the present. It is not the same metric used by Wall Street firm's sell-side analysts to determine a 12-month price target, as they typically use their earnings estimates and apply a predetermined ratio to come up with a price-to-earnings price, coupled with other market factors.

"Fair values are meant to provide an estimate of what the stock is worth, irrespective of what investors are willing to pay for it," says Morningstar, and therefore they tend to be lower since the approach is more conservative.

The stocks I highlight below have price-to-fair-value ratios below 50%, which means Morningstar's analysts expect that these stocks are now trading at less than half their value, per the fair value metric.

Here are 10 of Morningstar's five-star stocks with the biggest discount to the firm's fair-value estimate listed in order of highest to lowest discount:

10. Baker Hughes(BHI)

Company profile: Baker Hughes, with a market value of $18 billion, is a provider of a wide variety of oil-field services, such as directional drilling, oil field chemicals, drill bits, and electronic submersible pumping systems.

Dividend Yield: 1.4%

Investor takeaway: Its shares are down 15% this year, but have a three-year, average annual return of 11%. Analysts give its shares 13 "buy" ratings, nine "buy/holds," 11 "holds," and one "weak hold," according to a survey of analysts by S&P. Morningstar says its shares, now trading at $40.59, are trading at 46% of their fair-value estimate of $86.

9. AMN Healthcare Services(AHS)

Company profile: AMN Healthcare, with a market value of $248 million, is the largest health-care staffing firm in the U.S. About two-thirds of its business is generated from its temporary nursing division, but it also provides medical professionals of all ranks.