Five Stocks To Help You Survive Ben Bernanke’s Bullying Tactics

Federal Reserve Chairman Ben Bernanke is going all in trying to get you to give up on cash and bonds. The latest round of quantitative easing and news that the Fed will hold short-term rates hostage through mid-2015 likely means that bank savings accounts and Treasury bonds will continue to lag inflation for a long time coming.

6 Month Certificate of Deposit Rate Chart

6 Month Certificate of Deposit Rate data by YCharts

It’s a bully move of sorts: Bernanke wants to force you to move your safe money into the stock market, sending values even higher and setting off a virtuous cycle where we start feeling better about the economy, our 401(k) portfolios and invest (and spend!) more, thereby triggering economic growth. But what’s good for the economy isn’t necessarily a slam dunk for a carefully calibrated portfolio that pays attention to risk. Yes, dividend stocks are lovely, but they are still stocks, not bonds. Or cash. In down markets they fall. Just likely not as much as racier growth stocks.

If you’re going to acquiesce to the bullying, the smart move right now is to stick with high quality stocks that can take a punch or two in rough markets without being totally knocked out.

That’s pretty much been the mantra the past few years from Jeremy Grantham, the respected market strategist at investment firm GMO (which has nearly $100 billion under management). The five year annualized gain for the GMO Quality mutual fund is 2.5 percentage points better than the S&P 500, according to Morningstar. Now that said, the fund has a rather steep $10 million minimum investment requirement (what’d you expect from an institutional shop?) but that doesn’t mean we can’t peek under the hood to get a sense of what the GMO brain trust deems quality.

The five largest holdings (each represents at least 4% of assets) are Johnson & Johnson (JNJ), Phillip Morris (PM), Coca-Cola (KO), Oracle (ORCL) and Microsoft (MSFT).

JNJ Chart

JNJ data by YCharts

Granted Johnson & Johnson’s product line has been a bit of a basket case the past few years -- just search “JNJ recall” to get a sense of things -- but the company isn’t exactly bleeding itself dead.

JNJ Free Cash Flow TTM Chart

JNJ Free Cash Flow TTM data by YCharts

For the yield hungry, four of the five offer payouts above 2.5%, and Microsoft just announced plans to boost its dividend payout by 15%.

JNJ Dividend Yield Chart

JNJ Dividend Yield data by YCharts

That’s about 1 percentage point or more than you can get on a Bernanke-repressed short-term bond or cash payout.

Carla Fried is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.



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