Investing

The Bear Market Is Indeed Here: Time to Switch to Safer Assets

Lee Jackson

Published: December 18, 2018 7:10 am

Last Updated: January 11, 2020 1:34 pm

Typically when things turn negative, the always bullish sell-side analysts become a little less positive and start lowering their price targets. It often seems they never lower targets until the moves have already been made. Then like clockwork, the prognosticators and pundits start to tout the bear-market scenario.

On Monday, Jeffrey Gundlach from DoubleLine, now known as the new “Bond King,” having assumed the title once held by Bill Gross, said the bear market is here and we could go much lower. He also said the yield on the 10-year Treasury could go to 6% by 2021. With the current yield on the 10-year Treasury at 2.87%, that would be a huge move higher in rates.

As always, it’s just not as simple as selling everything and going to cash. What does make sense is to move to safer assets and wait out the bear market, while trying to raise cash to buy at what is the desperation or panic low.

We screened the Merrill Lynch research database looking for good ideas for worried investors, with a focus on stocks that should perform even if the economy slides into recession. We also looked for companies that paid a solid and dependable dividend.

American Electric Power

This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states.

The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which would be also accretive.

American Electric Power shareholders are paid a solid 3.35% dividend. The Merrill Lynch price target for the shares is $84, while the Wall Street consensus target price is $78.61. The stock closed on Monday at $77.33 a share, down almost 3.4% on the day.

Coca-Cola

This top Warren Buffet holding not only offers safety but an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.

Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.

Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

Coca-Cola investors are paid an outstanding 3.16% dividend. Merrill Lynch has a price target of $55 for the stock, while the posted consensus target was last seen at $51.76. The stock closed Monday’s trading at $48.33 apiece.

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Constellation Brands

If there is any company with products that stay in style, it is this one, which only has 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer. The company is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.

The company posted solid quarterly results, and analysts across Wall Street raised their earnings estimates for fiscal 2019. Constellation Brands has also made a gigantic $3.8 billion investment in cannabis company Canopy Growth to increase its holdings in the company. The record investment reflects a world in which pot has become ubiquitous as its counterculture stigma fades.

Investors in Constellation Brands are paid a 1.65% dividend. The $240 Merrill Lynch price target compares with the $244.22 consensus estimate. The stock closed trading at $176.05 on Monday.

Kraft Heinz

Kraft Heinz Co. (NYSE: KHC) was formed almost three years ago via the merger of H.J. Heinz and Kraft Foods. The company is the leading global food company, with $29 billion of annual revenues generated by well-known brands such as Kraft, Heinz, Oscar Mayer and Maxwell House.

The company is the third largest food and beverage manufacturer in North America, and it derives 76% of revenues from that market and 24% from International. The company’s many brands also include ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.

Kraft Heinz shareholders are paid a huge 5.27% dividend. Merrill Lynch has set its price objective at $83. The posted consensus target price is set much lower $60.27, and the shares closed most recently at $46.82.

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Kroger

This top grocer does almost all of its business in the United States. Kroger Co. (NYSE: KR) is the second largest U.S. food supermarket retailer and generates $120 billion in annual sales. Kroger operates roughly 2,800 supermarkets throughout 35 states and under two dozen banners. Kroger also sells fuel at 1,450 supermarket fuel centers and operates 2,268 pharmacies and 274 jewelry stores.

The stock remains very cheap as it has a market cap of under $24 billion. The company posted solid fiscal third-quarter results, wherein operating profits came in $100 million above Wall Street forecasts. Unexpected expense leverage on cost controls and alternative profit streams more than offset a lower gross margin due to price investments.

Kroger shareholders are paid a 1.9% dividend. Merrill Lynch recently raised its price target to $37 from $35. The consensus target is set at $31.22, and the stock closed on Monday at $28.92 per share.

These five stocks probably will hold up much better than momentum tech companies, and all do pay dependable dividends. While the sell-off that started in early October has been brutal, the reality is we could go much lower and rotating now might be a good strategy.