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Grantham sees the stock market downturn as far from over
The investor holds defensive stocks in the pharmaceutical and consumer goods sectors
Banks could also benefit from rising interest rates
Jeremy Grantham became a billionaire as the founder of the respected Grantham, Mayo, Van Otterloo & Co. (GMO) investment group. The Brit regularly comments on the market situation. This time around it is particularly drastic with his predictions: the stock market situation in 2022 reminds him of the year 2000. Similar to the bursting of the dot-com bubble, Grantham expects a difficult stock market in the coming years. But there are stocks that could escape the downward spiral and should deliver stable returns: Grantham holds three major stocks in his portfolio.
Grantham expects the S&P 500 to drop 40%.
Hopes that the worst is behind us and that stocks are bottoming have been fueled for many investors around the world over the past week. At least the most important indices of the USA, Europe and Asia have recovered from their respective lows. So can investors now take a deep breath and buy boldly again? Jeremy Grantham strongly advises against this: the markets still have significant downside potential. Grantham’s prognosis: “We were recently down 19.9% on the S&P 500 and 27% on the NASDAQ. At the very least, we will probably double that. If we were unlucky, which is entirely possible, we would go through three such stages.” , he told him in an interview with “CNBC”.
Grantham expects a recession, but defensive stocks would be less affected
The reason for Grantham’s stock market pessimism is his expectation that the United States and other Western countries will experience a severe recession. “We should be in some sort of recession pretty quickly and profit margins have a long way to go after a real peak,” she said. As expected, this will particularly affect economically sensitive and growth-oriented stocks. This divergent development has already become evident in recent months. Tech stocks like PayPal, Netflix, and Meta Platforms have particularly suffered from fears of a recession and rising interest rates. Conversely, more stable and more defensive companies such as Nestl, Procter & Gamble and energy companies such as Shell and BP have largely managed to escape the negative trend of recent months. Grantham has three promising stocks in its portfolio. What presumed safe havens are these?
Coca-Cola: Traditional moated brand
Coca-Cola is undoubtedly one of the best known defensive stocks, as it is considered particularly resistant to inflation and recession. The brand is present in over 200 countries and territories, and even in a weak economy billions of people can still afford their can of Coca-Cola. So it’s no wonder that long-term investors like Warren Buffett have held Coca-Cola stock in their portfolios for decades. Buffett repeatedly points out the huge “moat” that the beverage giant has. Grantham is also convinced of Coca-Cola: according to a 13F filing from the US Securities and Exchange Commission at the end of March, the Briton owned 9.41 million shares of Coca-Cola worth 583.5 million US dollars. This investment has recently paid off for Grantham: Coca-Cola shares have risen 6.89% over the past 12 months (as of June 14, 2022), which represents an impressive outperformance relative to the overall market.
Johnson & Johnson: Pharmaceutical manufacturer with stable earnings
Like Coca-Cola, Johnson & Johnson is a traditional Dow Jones stock. Pharmaceutical giant Johnson & Johnson is a global leader in the consumer health, pharmaceuticals and medical device markets. According to “yahoo finance”, the US company has 29 products, each of which generates a turnover of over one billion dollars. Average earnings growth over the past 20 years was 8%. Due to the indispensability of many J&J products and enormous pricing power, the pharmaceutical company should be able to cope with a multi-year stagflation much better than the general market. Johnson & Johnson’s tremendous resilience is demonstrated by the fact that the US group has been able to increase dividend income without exception over the past 60 years. The dividend yield is currently 2.56% and Johnson & Johnson stock has risen 2.25% over the past twelve months.
US Bancorp: US-Bank mit Zinsfantasie
If you ask stock experts which sector benefits most from rising interest rates, the answer is generally unanimous: the financial sector. As principal interest rates rise, banks’ margin between deposit and issue interest increases, insurance companies receive higher returns from their large bond portfolios, and reinsurers also benefit from the higher interest rate environment . It is therefore fitting that a bank occupies a large part of Grantham’s portfolio. More precisely, it is the fifth largest US bank, US Bancorp, based in Minneapolis (Minnesota). US Bancorp places a high value on asset quality. In the first quarter, net loan write-downs decreased 52% year-over-year. However, banks in general are suffering from weak economic development, which is why bank stocks have fared significantly worse than pharmaceutical and consumer staples companies in recent months. US Bancorp shares have also disappointed over the past 12 months. During that time, it is currently 21.86% below zero, but it could prove to be the long-term winner of the worldwide interest rate hike.
Financeen.net editorial staff
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