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.