With stocks making a comeback in January, some say that the market downturn is finally behind us. But according to legendary investor Jeremy Grantham, that’s not going to be the case.
In a letter titled After a Timeout, Back to the Meat Grinder, Grantham predicts that the market tumble is far from being done.
“My calculations of trendline value of the S&P 500, adjusted upwards for trendline growth and for expected inflation, is about 3200 by the end of 2023,” he writes.
Considering that the benchmark index currently sits at 4,066, Grantham’s price target implies a potential downside of 21%.
But that’s not all.
“Regrettably there are more downside potentials than upside. In the worst case, if something does break and the world falls into a severe recession, the market could fall a stomach-turning 50% from here.”
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It’s a scary picture. Due to last year’s market rout, a lot of stocks are already in correction territory. If the market continues to plunge, many investors’ portfolios will be deep in the red.
Grantham is the co-founder and investment chief at asset management firm Grantham, Mayo, Van Otterloo & Co. Given his gloomy forecast, let’s take a look at a few safe-haven stocks in GMO’s portfolio.
Coca-Cola is a classic example of a recession-resistant business. Whether the economy is booming or struggling, a can of Coke is affordable for most people.
The company’s entrenched market position, massive scale, and portfolio of iconic brands — including names like Sprite, Fresca, Dasani and Smartwater — give it plenty of pricing power.
Add solid geographic diversification — its products are sold in more than 200 countries and territories around the globe — and it’s clear that Coca-Cola can thrive through thick and thin. After all, the company went public more than 100 years ago.
More impressively, Coca-Cola has increased its dividend for 60 consecutive years. The stock currently yields 2.9%.
According to GMO’s latest 13F filing to the SEC, the asset manager owned 5.89 million shares of Coca-Cola at the end of September 2022, valued at $329.83 million.
Johnson & Johnson (JNJ)
With deeply entrenched positions in consumer health, pharmaceuticals and medical devices markets, healthcare giant Johnson & Johnson has delivered consistent returns to investors throughout economic cycles.
Many of the company’s consumer health brands — such as Tylenol, Band-Aid, and Listerine — are household names. In total, JNJ has 29 products each capable of generating over $1 billion in annual sales.
Not only does Johnson & Johnson post recurring annual profits, but it also grows them consistently: Over the past 20 years, Johnson & Johnson’s adjusted earnings have increased at an average annual rate of 8%.
The stock has been trending up for decades, all while returning an increasing amount of cash to shareholders. JNJ announced its 60th consecutive annual dividend increase last April and now yields 2.7%.
As of Sept. 30, 2022, GMO held 3.00 million shares of JNJ, worth approximately $490.49 million at the time.
U.S. Bancorp (USB)
Rounding out the list is U.S. Bancorp, the parent company of U.S. bank and one of the largest banking institutions in the country.
The banking industry isn’t quite as shockproof as consumer staples or healthcare. But interest rates are on the rise, and that could serve as a tailwind for banks.
Banks lend money out at higher interest rates than they borrow, pocketing the difference. As interest rates increase, the spread earned by banks widens.
To tame spiking inflation, the Fed raised its benchmark interest rates by 50 basis points in December, marking its seventh rate hike for the year.
In September, the bank increased its quarterly cash dividend from 46 cents to 48 cents per share. At the current share price, the company yields a generous 4.0%.
At the end of Q3 2022, Grantham’s asset management firm owned $384.16 million worth of U.S. Bancorp.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.