COVID cases are surging while consumer confidence is plummeting. And the Fed is doing its best to cool the effects of inflation.
All of that makes Lisa Shalett, Morgan Stanley’s chief investment officer of the firm’s wealth management division, nervous.
In a recent call with investors, Shalett reiterated her confidence that the market is due for a major correction — between 10% and 15% — before the end of the year.
Within that context, Shalett advised investors to rebalance their portfolios to favor financials, consumer staples, consumer services and health care — particularly companies that can provide a steady stream of income.
Let’s take a quick look at a few possible plays from those sectors.
From banks to Band-Aid and snacks to shopping, one of them could be your next big wealth-building investment.
1. Financials: Bank of America (BAC)
Over the last decade, Bank of America has streamlined and refined its business practices and operations to rise from one of the lowest rated banks in the country to the second-largest bank by assets.
As the economy continues to recover from the pandemic and inflation continues to surge, interest rates are likely to rise, putting the bank is in a good position to continue its success. Banks benefit from higher rates through a wider “spread” — the difference in interest that they pay to customers and what they earn by investing.
And despite not quite hitting its earning mark last quarter, Bank of America delivered shareholders a dividend hike — upping its yield 17% from 18 cents to 21 cents per share. Currently, the shares offer a dividend yield of 1.8%.
Blue-chip investors might want to grab that yield using a free investing app.
2. Consumer Staples: PepsiCo (PEP)
Pepsico is so much more than a major cola and soda brand. Most consumers will be aware that Mountain Dew and Gatorade fall under the Pepsico umbrella.
But this food and beverage juggernaut also owns Frito-Lay, Quaker Foods, Tropicana, SodaStream and dozens of other brands across the world.
With everyone spending so much time at home, snack food consumption went way up during the pandemic — which was great news for Pepsi. In July, the company reported that net sales rose more than 20% year over year to $19.22 billion — nicely above expectations of $18 billion.
And the company is passing on some of those sweet (or salty, depending on your taste) dollars to shareholders through healthy dividends, which have been steadily increasing over the years. Over the past ten years, Pepsico’s dividend has grown at a compounded rate of 7.7%.
Pepsico shares offer a dividend yield of 2.7%.
3. Consumer Services: Target (TGT)
While many brick and mortar retailers suffered through long lockdowns, Target’s profits have soared over the last year and a half. So much so that it’s even been beating sales of pre-pandemic years.
Part of that can be attributed to the company’s investment in its contactless delivery and pick-up in-store capabilities — with many orders now available for same-day fulfillment.
Another factor in Target’s success is its convenience: with everything from cleaning supplies to clothing and from food to furniture, Target’s one-stop shop is appealing — especially for consumers still thinking about limiting their exposure as the country grapples with the delta variant.
Even after a record year of 24.3% growth in comparable sales last year, in Q2, Target reported 8.9% growth. Its dividend of 90 cents per share reflects that growth — as it’s a significant jump from 68 cents the previous quarter.
At the moment, Target shares sport a dividend yield of 1.5%.
4. Health care: Johnson & Johnson (JNJ)
Between its business in medical devices, pharmaceuticals and consumer packaged goods, Johnson & Johnson has become a household name.
And more than that, its numerous subsidiaries including Band-Aid, Tylenol, Neutrogena, Listerine and Clean & Clear could stand on their own as successful brands.
JNJ’s diverse holdings in the health care segment ensures it’s able to ride out any economic slumps. And with a handful of industry-leading drugs for immunology and cancer treatment under its Janssen Pharamceutica arm, there’s a good deal of growth opportunity for JNJ.
The company’s Q2 results were buoyed by $12.59 billion in revenue from its COVID-19 shot over the year — with global sales of $164 million in the second quarter alone.
JNJ shared its success with shareholders through a dividend of $1.06 in the third quarter, up from $1.01 six months before.
The stock currently has a dividend yield of 2.5%.
Where to go from there
You don’t have to buy into these specific companies to build a correction-proof portfolio heading into the last few months of 2021.
Follow the principle of Shalett’s advice and look for assets that offer both stability and high returns at a reasonable price.
All that can be found in one of Bill Gates’ top portfolio picks — investing in U.S. farmland.
There’s a reason a billionaire like Gates is now the country’s biggest owner of farmland: Agriculture has been shown to offer higher risk-adjusted returns compared to both stocks and real estate.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
