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Jeremy Grantham warns stocks could drop ‘50%’ from here – he’s using these 3 shockproof stocks for protection


'Back to the meat grinder': Jeremy Grantham warns stocks could drop '50%' from here - he's using these 3 shockproof stocks for protection

‘Back to the meat grinder’: Jeremy Grantham warns stocks could drop ‘50%’ from here – he’s using these 3 shockproof stocks for protection

With stocks coming back in January, some say the market downturn is finally behind us. But according to legendary investor Jeremy Grantham, that’s not going to happen.

In a letter titled After the Waiting, Back to the Meat Grinder, Grantham predicted that the market crash is far from over.

“My calculation for the S&P 500 trendline value, adjusted upward for the growth trendline and projected inflation, is around 3200 by the end of 2023,” he wrote.

Considering that the benchmark is currently at 4,066, Grantham’s price target implies a potential drop of 21%.

But that’s not all.

“Unfortunately, it is more likely to fall than to increase. In the worst case scenario, if something breaks and the world goes into a severe recession, the market could drop 50% from here.”

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It’s a scary picture. Due to the market performance last year, a lot of stocks were in the correction zone. If the market continues to plunge, many investors’ portfolios will be in the red.

Grantham is the co-founder and chief investment officer of wealth management firm Grantham, Mayo, Van Otterloo & Co. Given his bleak forecast, let’s take a look at some of the safe-haven stocks in GMO’s portfolio.

Coca-Cola (KO)

Coca-Cola is a classic example of a business that weathered a recession. Whether the economy is booming or struggling, almost anyone can afford a Coke.

Its strong market position, large scale and portfolio of iconic brands — including the likes of Sprite, Fresca, Dasani and Smartwater — give the company plenty of pricing power. .

Add a solid geographical diversification — its products are sold in more than 200 countries and territories around the globe — and it’s clear that Coca-Cola can thrive. After all, the company went public over 100 years ago.

More impressively, Coca-Cola has raised its dividend for 60 years in a row. The stock currently has a yield of 2.9%.

According to GMO’s latest 13F filing with the SEC, the asset manager owned 5.89 million Coca-Cola shares at the end of September 2022, worth $329.83 million.

Johnson & Johnson (JNJ)

With a strong position in the consumer health, pharmaceutical and medical device markets, healthcare giant Johnson & Johnson has delivered consistent returns to investors throughout the cycles. economy.

Many of the company’s consumer wellness brands — such as Tylenol, Band-Aid, and Listerine — are household names. In total, JNJ has 29 products, each with the potential to generate more than $1 billion in annual sales.

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Johnson & Johnson not only publishes annual returns, but grows steadily: Over the past 20 years, Johnson & Johnson’s adjusted earnings have grown at an average annual rate of 8%.

The stock has been on an uptrend for decades, while delivering a growing amount of cash to shareholders. JNJ announced its 60th consecutive annual dividend increase in April last year and currently yields 2.7%.

As of September 30, 2022, GMO held 3.00 million shares of JNJ, worth approximately $490.49 million at the time.

US Bancorp (USB)

Rounding out the list is US Bancorp, the parent company of US banking and one of the largest banking institutions in the country.

The banking industry is not quite as shockproof as consumer staples or healthcare. But interest rates are rising, and that could act as a headwind for banks.

Banks lend money at a higher interest rate than they borrow, pocketing the difference. As interest rates rise, banks’ spreads widen.

To tame soaring inflation, the Fed raised its benchmark interest rate by 50 basis points in December, marking its seventh rate hike of 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 offers a generous 4.0% return.

At the end of the third quarter of 2022, Grantham’s wealth management company owned US Bancorp worth $384.16 million.

What to read next?

This article is for information only and should not be construed as advice. It is provided without warranty of any kind.

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