Goldman Sachs Says There's an 88% Chance of a Bear Market: 3 Stocks to Own
Could we be on the verge of a new bear market? The answer is "yes," according to Goldman Sachs' Chief Global Equity Strategist Peter Oppenheimer and his team.
An exhaustively researched, 87-page report titled "Bear Necessities: Should We Worry Now?" lays out the case for trouble ahead. Everyone loves a Disney song reference -- "Bear Necessities" is a reference to a song in the film The Jungle Book -- but the contents of the report are ominous.
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The team dug through a century's worth of economic and stock market data. They found that the U.S. stock market, as measured by the S&P 500 Index, is in the midst of the second-biggest bull market in recorded history. But then the news gets worse: While the valuation of the S&P 500 is now in its 88th percentile (using data from 1976), the median stock in that index is in its 99th percentile.
Taking their research a step further, the Goldman team put together a bear-market indicator as a result of the data. This indicator is signaling Goldman's analysts that there's an 88% chance we'll experience a bear market in the next 24 months.
Investors are between a rock and a hard place. Sky-high valuations for stocks are due, in part, to record-low interest rates. With the Federal Reserve now steadily increasing the federal funds rate, investors have limited options. One of them is shifting toward stocks that hold up extraordinarily well in bear markets, so here's why General Mills (NYSE: GIS), Atmos Energy (NYSE: ATO), and AB InBev (NYSE: BUD) are three great stocks to get Foolish investors prepared.
Make sure to eat your Wheaties
Every morning, millions of people start their days with a bowl of cereal. The corporate label on the side of those cereal boxes is frequently General Mills.
The consumer-food giant's reach doesn't stop there. Not only does it make favorites like Wheaties and Cheerios, but everything from yogurt (Yoplait) to Nature Valley granola bars. It's even a top competitor to Campbell Soup via its Progresso soups.
General Mills isn't exactly a growth business these days. In fact, quite the opposite. Sales in its fiscal Q1 were down 3.5% year over year. The main culprit was its North America region, where organic sales fell 5%.
Fortunately, General Mills is a global company, with operations in Europe, Asia, and Latin America, which all can generate growth in the years ahead. Results in Europe and Australia have been encouraging. Recently, management guided for organic sales declines of just 1%-2% this fiscal year -- a sign that the tide is slowly beginning to turn.
At their lowest point, General Mill's shares fell by about one-third during the Great Recession -- half the drop experienced by the S&P 500 Index. Today, General Mills trades at around 17.5 times forward earnings estimates (below the market average), and sports a dividend yield of 3.5%, which can help cushion portfolios through a bear market.
Natural gas should be a cornerstone of any bear-market portfolio
You may have never heard of Atmos Energy, but if a bear market occurs, you'd be glad to have it in your portfolio. Atmos is the most significant regulated natural-gas distributor in the U.S. Its operations span nine states, and over 3 million natural-gas distribution customers rely on Atmos to supply gas to some 1,400 communities.
Natural-gas production continues to rise in the United States. As one of the largest intrastate natural-gas pipeline owners, Atmos is clearly a beneficiary. Its growing dividend currently is decent, at just over 2%. Atmos has raised its dividend every year for the past 34 years and continues to target annual increases of between 6% to 8%.
Where Atmos truly shines is its stock-price performance during the last recession. Because the market knew that Atmos was a regulated infrastructure company, with guaranteed profitability, its shares fell a mere 20% during the financial crisis of 2008-2009.
In the next bear market, Atmos likely will be a fantastic bedrock stock for investors.
Pour yourself a cold one when the bear bursts onto the scene
When the next bear market arrives, consumers and investors will find a lot to like with my third pick: AB InBev. The company is the world's largest beer brewer, with over 500 brands sold in over 130 countries.
The company has 45% of the beer market in the United States, led by Bud Light, which garnered over $2 billion in sales last year alone. It also has the dominant market share in dozens of other countries. Craft beer may be the beer story stateside, but one can't escape AB InBev in search of a "cold one" in South America and Africa. For example, it has 66% market share in Brazil -- a nation of over 200 million.
AB InBev has a lot to offer investors in a bear market. It's sky-high 5% dividend yield will help pad any downdraft, and provide much-needed cash to buy stocks on the way down. It also continues to exceed cost-savings estimates. So far, it's saved approximately $3.2 billion versus the expected $2.8 billion following its merger with SAB Miller.
The performance of BUD's shares throughout the Great Recession are difficult to calculate. Its merger with Anheuser-Busch -- which was announced in July 2008, just before the trouble started -- muddied the waters. But a quick glance at its share price in 2009 shows that it navigated the downturn admirably.
Foolish final thoughts
Market timing is a (lower-case) fool's errand. There's just no telling when a new bear market may arrive. That said, Goldman's team of equity strategists have a point. Stocks are expensive, and the higher they rise, the bigger the potential fall.
A long-term view is an investor's best friend in such a world. In fact, any bear market is the friend of anyone looking to buy great stocks at wonderful prices.
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Sean O'Reilly owns shares of Atmos Energy and General Mills. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.
