This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

GMO's Cautious Founder Finds Some Stocks to buy

NEW YORK ( TheStreet) -- Jeremy Grantham, founder of money manager GMO, gained a wide following after he made a series of on-target market calls.

In the late 1990s, he protected clients by urging them to stay away from high-priced stocks. Then, in 2007, he again warned about stocks being overpriced. The cautious stance enabled GMO's mutual funds to outperform peers during the financial crisis.

These days Grantham is still pessimistic about the outlook for most U.S. stocks, but he has a positive view on some sectors. Speaking at the recent Morningstar Investment Conference in Chicago, he said European stocks look cheap. Investors should also get decent returns from the emerging markets and high-quality stocks in the U.S.

Most of Grantham's mutual funds are aimed at institutions. But retail investors who want to follow his advice can try Wells Fargo Advantage Asset Allocation (EAAFX), which is managed by GMO. The Wells Fargo fund invests in GMO's institutional funds. The portfolio manager varies the mix as GMO's outlook changes. During the past five years, the Wells Fargo fund has returned 1.6% annually, compared to a loss of 0.4% for the Standard & Poor's 500.

The Wells Fargo fund's biggest holding is GMO Quality VI (GQLOX), which focuses on undervalued stocks with high returns on equity. Companies in the portfolio include such reliable performers as Microsoft (MSFT), Johnson & Johnson (JNJ) and Chevron (CVX). The Wells Fargo fund also has a sizable stake in GMO International Core Equity VI (GCEFX), which has 40% of its assets in European stocks such as French oil producer Total (TOT) and British drug giant GlaxoSmithKline (GSK).

To arrive at his market calls, Grantham looks at valuations and earnings prospects. He assumes that sectors with below-average prices will revert back to their normal ranges.

In the latest forecast, GMO projects that emerging markets stocks will return 6.7% annually above inflation during the next seven years. International large caps will return 6.1%. Grantham is wary of small-cap U.S. stocks and government bonds, which should not keep pace with inflation.

If you are inclined to dismiss the forecasts, consider GMO's predictions that appeared at the end of 2001. At the time, emerging market stocks had suffered through years of disastrous returns, and few investors were clamoring to try funds specializing in Asia and Latin America.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $129.67 -0.57%
FB $79.34 -1.30%
GOOG $561.92 1.20%
TSLA $203.13 -2.00%
YHOO $44.30 -0.34%

Markets

DOW 18,193.90 -20.52 -0.11%
S&P 500 2,112.33 +1.59 0.08%
NASDAQ 4,982.1090 -5.7810 -0.12%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs