Morgan Stanley warns of 'acute downside risk' in markets over next few months

Coca-Cola (KO)

You don’t need to be a Wall Street analyst to see why Coca-Cola could be a great stock to own in turbulent times. Whether the market is rallying or plunging, a can of Coke is still affordable to most people.

Factor in the strength from its iconic brand portfolio — includes the likes of Sprite, Minute Maid, Vitamin Water and Powerade — and the fact that its products are sold in more than 200 countries, and it’s clear that the business model can thrive through thick and thin.

In Q4, the beverage giant’s net revenue grew 10% year over year, driven by a 9% increase in global unit case volume.

Last month, the company announced its 60th consecutive annual dividend increase, boosting its quarterly payout to 44 cents U.S. per share. The stock now yields an attractive 3%.

On Feb. 8, Morgan Stanley analyst Dara Mohsenian raised his price target on Coca-Cola from US$65 to US$71 while maintaining an overweight rating. The price target implies a potential upside of 20% from current levels.

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Procter & Gamble (PG)

Procter & Gamble is another defensive stock that has the ability to deliver cash returns to investors in different economic environments.

Last April, P&G’s board of directors announced a 10% increase to its quarterly payout, marking the company’s 65th consecutive annual dividend hike. The stock currently offers an annual dividend yield of 2.3%.

It’s not difficult to understand why the company is able to maintain such a streak.

P&G is a consumer staples giant with a portfolio of trusted brands like Bounty paper towels, Crest toothpaste, Gillette razor blades and Tide detergent. These are products that households buy on a regular basis, regardless of what the economy is doing.

The business is growing, too. In the December quarter, P&G’s net sales totaled US$21 billion, up 6% from a year ago.

Mohsenian raised his price target on P&G from US$161 to US$177 in January – roughly 20% above where the stock sits today. P&G is the analyst’s favorite company in the household products space and he maintains an overweight rating on the stock.

American Electric Power (AEP)

Investing in utility stocks is a tried and true way of recession-proofing a portfolio. No matter how many times central banks raise interest rates — and how bad the next bear market turns out to be — people will still need to heat their homes and turn on the lights.

Morgan Stanley maintains an overweight rating on regulated electricity giant American Electric Power. By operating the U.S.’s largest electricity transmission system and over 224,000 miles of distribution lines, AEP delivers power to 5.5 million customers in 11 states.

In Q4 of 2021, the company generated operating earnings of 98 cents U.S. per share, up 13% year over year. Management also raised its full-year guidance, and now expects to deliver US$4.87 to US$5.07 per share in 2022 operating earnings. AEP’s operating earnings clocked in at $4.74 per share in 2021.

Strong utility businesses are typically well-positioned to pay steadily growing dividends and that’s exactly what management has been doing. Over the past five years, AEP’s per-share quarterly dividend payout has increased by 32%. The stock currently yields a solid 3.2%.

Morgan Stanley has a price target of US$105 on AEP shares, implying upside of about 10.5% from current prices.

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