With stocks pulling back substantially from earlier highs, some say that the market could reach a bottom soon. But according to legendary investor Jeremy Grantham, that’s not going to be the case.
In a recent interview with CNBC, Grantham predicts that the market tumble is far from being done.
“The other day, we were down 19.9% on the S&P 500, and about 27% on the Nasdaq. At a minimum, we are likely to do twice that. If we’re unlucky — which is quite possible — we would do three legs like that,” he says.
That’s a scary picture. A lot of stocks are already in correction territory. If the market continues to plunge, many investors’ portfolios will be deep in the red.
“We should be in some sort of recession fairly quickly, and profit margins from a real peak have a long way that they can decline.”
Grantham is the co-founder and investment chief at asset management firm Grantham, Mayo, & van Otterloo. 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 2.8%.
According to GMO’s latest 13F filing to the SEC, the asset manager owned 9.41 million shares of Coca-Cola at the end of March, valued at $583.5 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. And it is demonstrating its resilience again in 2022: While the broad market has declined quite a bit, JNJ is up 3.3% year to date.
JNJ announced its 60th consecutive annual dividend increase in April and now yields 2.6%.
As of Mar. 31, GMO held 2.58 million shares of JNJ, worth approximately $457.2 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 75 basis points in June, marking the largest rate hike since 1994.
Last summer, the bank increased its quarterly cash dividend from 42 cents to 46 cents per share. At the current share price, the company yields a generous 4.1%.
At the end of March, Grantham’s asset management firm owned $520.5 million worth of U.S. Bancorp.
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