Jeremy Grantham warns stocks could plunge 50% from here – he’s using these 3 shock stocks to protect himself

‘Back to the meat grinder’: Jeremy Grantham warns stocks could plunge 50% to stomach – he’s using these 3 shock stocks to protect himself

With equities back in January, some say the market downturn is finally behind us. But according to legendary investor Jeremy Grantham, that won’t be the case.

In a letter titled After a Timeout, Back to the Meat Grinder, Grantham predicts that the market’s downfall is far from over.

“My calculations for the value of the S&P 500 trendline, adjusted upward for trendline growth and for expected inflation, are around 3200 by the end of 2023,” writes- he.

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

But that’s not all.

“Unfortunately, there is more downside potential than upside. In the worst case scenario, if something breaks and the world falls into a severe recession, the market could drop 50% from here.”

Don’t miss

It’s a scary picture. Due to the market rout last year, many stocks are already in correction territory. If the market continues to slide, many investors’ portfolios will be plunged into the red.

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

Coca-Cola (KO)

Coca-Cola is a classic example of a recession-proof company. 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 considerable pricing power.

Add in solid geographic diversification – its products are sold in more than 200 countries and territories around the world – and it’s clear that Coca-Cola can thrive through thick and thin. After all, the company went public over 100 years ago.

More impressively, Coca-Cola has increased its dividend for 60 consecutive years. The title is currently yielding 2.9%.

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

Johnson & Johnson (JNJ)

With deep-seated positions in the consumer healthcare, pharmaceuticals and medical devices markets, healthcare giant Johnson & Johnson has delivered consistent returns to investors through economic cycles.

Many of the company’s consumer health brands, such as Tylenol, Band-Aid and Listerine, are household names. In total, JNJ offers 29 products each capable of generating over $1 billion in annual sales.

Read more: Wealthy young Americans have lost faith in the stock market — and are instead betting on those assets. Enter now for strong long-term tailwinds

Not only does Johnson & Johnson post recurring annual profits, but it also steadily increases them: over the past 20 years, Johnson & Johnson’s adjusted profits have grown at an average annual rate of 8%.

The stock has been on an upward trend for decades, while returning an increasing amount of money to shareholders. JNJ announced its 60th consecutive annual dividend increase last April and is now yielding 2.7%.

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

American Bancorp (USB)

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

The banking sector is not as resilient to shocks as consumer staples or healthcare. But interest rates are on the rise, and that could serve as a tailwind for banks.

Banks lend money at higher interest rates than they borrow, pocketing the difference. As interest rates rise, the spread earned by banks widens.

To rein in soaring 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 is yielding a generous 4.0%.

At the end of the third quarter of 2022, Grantham’s asset management company held $384.16 million in US Bancorp.

What to read next

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

Leave a Comment