Morgan Stanley Expects S&P 500 to Fall Another 15%-25% Over Next Four Months — Use These Top 3 Recession-Proof Stocks for Protection

Morgan Stanley Expects S&P 500 to Fall Another 15%-25% Over Next Four Months — Use These Top 3 Recession-Proof Stocks for Protection

If you thought the selloff in the stock market was over, Morgan Stanley has some bad news.

The S&P 500 is already down 17% year-to-date, but the Wall Street juggernaut believes the market hasn’t bottomed yet.

“Our base case estimates for ’22/’23/’24 are now 3%/13%/14% below consensus, respectively,” a team of Morgan Stanley analysts led by Mike Wilson wrote in a recent note to the investors. “In our base case, 2023 now signals a modest earnings contraction (-3% annual growth), although we do not incorporate an economic downturn into this scenario.”

“While we acknowledge the stock’s poor year-to-date performance, we do not believe the bear market is over if our earnings forecasts are correct.”

Analysts expect the S&P 500 to fall to 3,400 by the end of the year. And if a recession hits the economy, they say the benchmark could fall to 3,000.

Considering the S&P 500 is currently around 3,980, Morgan Stanley’s forecast implies a further decline of 15% to 25%.

That doesn’t mean we sell everything. The Wall Street firm still sees upside in several companies. Here’s a look at three he finds particularly appealing.

Dont miss

Eli Lilly (LLY)

This American pharmaceutical giant has more than $290 billion in market capitalization, with products marketed in 120 countries around the world.

Despite the market downturn this year, Eli Lilly is not a loser stock.

In the first six months of 2022, Eli Lilly’s revenue rose 6% year over year. Meanwhile, the company’s adjusted earnings per share improved 12% from a year ago.

Shares are up about 15% so far in 2022, and Morgan Stanley expects the trend to continue.

On September 7, analyst Terence Flynn reiterated an “overweight” rating on Eli Lilly while raising his price target to $412 from $395.

Considering that Eli Lilly shares are currently trading at around $311 apiece, the new price target implies a potential upside of 32%.

Welltower (WELL)

Welltower operates in the real estate industry.

The company doesn’t have fancy shopping malls or fancy office buildings. Instead, it focuses on healthcare infrastructure and provides real estate capital to senior housing agencies, post-acute care providers and health systems.

In the second quarter, Welltower’s revenue rose 29.1% year over year to $1.47 billion. Same-store net operating income increased 8.7%.

Healthcare is a recession-proof industry, so healthcare-based real estate is typically in high demand.

The company is also benefiting from a major demographic headwind: the aging population.

Morgan Stanley analyst Ronald Kamdem notes that the 75-and-over population is expected to grow by 4 percent annually through 2030, which could serve as a catalyst for Welltower’s business.

Kamdem has an “overweight” rating on the company and a $90 price target — implying a potential upside of 16%.

ExxonMobil (XOM)

Thanks to strong oil prices, energy stocks have turned out to be some of the S&P 500’s best performers so far this year.

Exxon Mobil, for example, is up 49% year-to-date — and that’s after a strong rally in 2021.

The oil giant is gushing out profits and cash flow in this commodity price environment. In the first half of 2022, Exxon earned $23.3 billion in profit, a huge increase from $7.4 billion in the previous period. Free cash flow was $27.7 billion for the first half, compared with $13.8 billion in the same period last year.

Solid financials allow the company to return cash to investors. Exxon pays a quarterly dividend of 88 cents per share, which translates to an annual yield of 3.7%.

Morgan Stanley analyst Devin McDermott has an “overweight” rating on Exxon and recently raised his price target to $113 — about 20% above current levels.

What to read next

This article provides information only and should not be construed as advice. Provided without warranty of any kind.

Leave a Reply

Your email address will not be published. Required fields are marked *