Strategist says it's the 'last phase' of the bear market — and names 3 stocks to buy right now

Published Wed, Feb 22 20237:22 PM EST

Stocks are in the "last phase" of the bear market — and investors should look forward to the second half of 2023, one analyst says. "We're sort of in the last phase of the bear market," said James Demmert, chief investment officer at Main Street Research. "That last phase is usually where the earnings really start to get a crack," he told CNBC " Street Signs Asia " on Wednesday, citing as an example Home Depot's modest fourth-quarter revenue — the first time the company missed Wall Street's revenue expectations since 2019. He pointed to another sign that the bear market is nearing its end: terminal rate estimates are rising and staying high for longer. Markets rallied at the start of the year, but Demmert said that was just another bear market rally. In fact, on Tuesday, the main Wall Street indexes closed to cap their worst day of 2023 on expectations that the U.S. Federal Reserve would keep interest rates "higher for longer" after last week's inflation data came in hotter than expected . "But I don't think the bear market goes on for two or three more quarters … maybe the last phase is going to be ugly. But that's probably it," he said. "And I think that the back half of this year is going to be where the opportunity lies. And I think smart investors make a list of great companies and get ready for that," Demmert added. Stock picks Demmert likes three stocks right now. One of them is pharmaceutical firm Novo Nordisk , which he says is "a good example of what you want to own in a bear market." He added that the company is the "dominant provider of insulin" worldwide and is a "consistent business." "It's a consistent growth story at a reasonable multiple relative to that consistent growth. That's really what we urge investors to do — stay in those sectors during this difficult part of the market that have resiliency, like the staples, the health care, the utilities. They're boring, but that's what gets you through this period," Demmert said. He also likes oil giant Shell , which he says is trading at very reasonable multiples — with a 6% dividend in "one of the few industries that's actually healthy." The energy business is "thriving" and will benefit from China's reopening and the "eventual end" to the Russia-Ukraine war, he said. Finally, Demmert named Coca Cola , which he called a domestic consumer staple with a "recession-proof" business model. It's also proven able to navigate the inflationary environment, he added.