Morgan Stanley expects the S&P 500 to plunge one other 15%-25% throughout the subsequent 4 months — use these 3 prime recession-resistant shares for cover

In the event you suppose the inventory market selloff has come to an finish, Morgan Stanley has some unhealthy information.

The S&P 500 is already down 16% yr up to now, however the Wall Avenue juggernaut believes the market has but to hit a backside.

“Our ’22/’23/’24 base case estimates at the moment are 3%/13%/14% beneath consensus, respectively,” a staff of Morgan Stanley analysts led by Mike Wilson wrote in a notice to traders earlier this fall. “In our base case, 2023 now marks a modest earnings contraction (-3% year-over-year development), although we don’t embed an financial recession on this situation.”

“Whereas acknowledging the poor efficiency in equities year-to-date, we don’t suppose the bear market is over if our earnings forecasts are appropriate.”

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The analysts anticipate the S&P 500 to fall to three,400 by year-end. And if a recession hits the economic system, they are saying the benchmark index might drop to three,000.

Contemplating that the S&P 500 sits at round 3,992 proper now, Morgan Stanley’s projection implies an extra draw back of 15% to 25%.

That doesn’t imply promoting the whole lot. The Wall Avenue agency nonetheless sees upside in fairly a number of firms. Right here’s a take a look at three that it finds significantly enticing.

Eli Lilly (LLY)

This American pharmaceutical large instructions round $300 billion in market cap, with merchandise marketed in 120 nations world wide.

Regardless of the market downturn this yr, Eli Lilly will not be a beaten-down inventory.

Within the first 9 months of 2022, Eli Lilly’s income grew 5% yr over yr. In the meantime, the corporate’s earnings per share improved 13% from a yr in the past.

Shares are literally up roughly 30% to this point in 2022, and Morgan Stanley expects the development to proceed.

On Sept. 7, analyst Terence Flynn reiterated an “chubby” ranking on Eli Lilly whereas elevating his value goal from $395 to $412.

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Contemplating that Eli Lilly shares commerce at round $349 apiece proper now, the brand new value goal implies a possible upside of 18%.

Welltower (WELL)

Welltower is in the actual property enterprise.

The corporate doesn’t personal fancy procuring malls or posh workplace buildings. As an alternative, it focuses on well being care infrastructure and gives actual property capital to senior housing operators, post-acute care suppliers and well being methods.

In Q3, Welltower’s normalized funds from operations — a key actual property metric — grew 5% yr over yr. Its same-store web working revenue rose 7.2%.

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Well being care is a recession-resistant sector, so well being care-anchored actual property is usually in excessive demand.

The corporate additionally advantages from a serious demographic tailwind: inhabitants getting older.

Morgan Stanley analyst Ronald Kamdem notes that the inhabitants aged 75 and older is predicted to develop by 4% yearly by 2030, which might function a catalyst for Welltower’s enterprise.

Kamdem has an “chubby” ranking on the corporate and a value goal of $90 — implying a possible upside of 26%.

Exxon Mobil (XOM)

Due to robust oil costs, power shares have turned out to be among the greatest performers of the S&P 500 to this point this yr.

Exxon Mobil, for example, is up 79% yr up to now — and that’s after a robust rally in 2021.

The oil-producing large gushes income and money stream on this commodity value setting. Over the previous 12 months, Exxon has generated $387 billion in income. Free money stream has clocked in at a whopping $43.7 billion over the identical time-frame.

Stable financials enable the corporate to return money to traders. Exxon pays quarterly dividends of 91 cents per share, translating to an annual yield of three.2%.

Morgan Stanley analyst Devin McDermott has an “chubby” ranking on Exxon and has raised his value goal to $114 — which the corporate is simply hovering beneath now.

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This text gives data solely and shouldn’t be construed as recommendation. It’s offered with out guarantee of any form.