Jeremy Grantham still expects the S&P 500 to plunge by 50% from its peak — here are 3 recession-proof stocks in his portfolio to help limit the pain

Market Trading EssentialsAugust 14, 2022

3 minutes read

Jeremy Grantham still expects the S&P 500 to plunge by 50% from its peak — here are 3 recession-proof stocks in his portfolio to help limit the pain

Many investors hope that the stock market has finally bottomed out. But according to legendary investor Jeremy Grantham, that’s not the case.

In a recent ‘We Study Billionaires’ podcast, Grantham predicts that the market tumble is far from over.

“In terms of the entire bear market, it would be unusual for it to bottom out anywhere near this high,” he says. “I would expect that by the low, the S&P would have declined by 50% from the peak in real terms.”

Grantham is the co-founder and investment chief at asset management firm Grantham, Mayo, & van Otterloo. Given his bearish forecast, let’s take a look at a few safe haven stocks in GMO’s portfolio.

Don’t miss

Coca-Cola (KO)

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 roughly 6 million shares of Coca-Cola at the end of June, valued at $374.2 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 several 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 remains down double-digits, JNJ is off just 3.5%.

JNJ announced its 60th consecutive annual dividend increase in April and now yields 2.7%.

As of the most recent quarter, GMO held 2.3 million shares of JNJ, worth approximately $403.6 million.

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 has been raising rates at the fastest pace in decades.

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 3.8%.

At the end of the last quarter, Grantham’s asset management firm owned about 9.6 million shares of U.S. Bancorp worth $441.2 million.