Hands Down, This Is the Best Safety Stock in a Tumultuous Market

Ever wonder what may be the most recession-resistant stock? In this segment of “The Rank” on Motley Fool Live, recorded on March 7, Fool contributors Matt Frankel, Tyler Crowe, and Jason Hall outline Berkshire Hathaway‘s ( BRK.A 2.86% ) ( BRK.B 2.64% ) successful diversified businesses and why it’s a hit with investors, especially during a period of market volatility.

Matt Frankel: Our No. 1 stock for the day is Berkshire Hathaway. Everyone thought that was the best combination of risk-reward out of the six stocks and I want to quickly share. Berkshire Hathaway is great at saving costs and eliminating unnecessary expenses. Here’s a perfect example of why.

This is Berkshire Hathaway’s actual homepage. Anyone ever see that before? [laughs] If you think this looks like something that was out of the ’90s, you’re right. It is. It hasn’t changed significantly in years. It’s minimally functional and tells you all you need to know. What is Berkshire Hathaway doing? To be fair some of Berkshire Hathaway subsidiaries have better websites.

Tyler Crowe: Anybody else notice that every link has been clicked on by Matt on this page?

Frankel: Almost. There’s a small advertisement for Geico in the bottom.

Crowe: Sorry, I missed that one.

Frankel: I’m already a Geico customer so I had no need to click on that link.

Crowe: I think he’s even clicked a legal disclaimer based on the color of the link.

Frankel: [laughs] This is the list of all their subsidiary companies. A lot of people don’t realize that all of these are Berkshire Hathaway companies. A lot of people know the big ones like Geico. But there were about 60 companies on this list.

Dairy Queen, if you didn’t know Dairy Queen, is a Berkshire Hathaway business. Duracell, the batteries you buy, that’s a Berkshire Hathaway business. Clayton Homes, if you’ve seen the manufactured home company, that’s a Berkshire Hathaway company. If you read an article on Business Wire, which I know I read a lot of those for sources from time to time. I’m sure Jason and Tyler do as well. That’s a Berkshire Hathaway business. See’s Candies, Buffett has a sweet tooth so that one makes sense.

If you look through this there’s a diverse array of businesses. This is in addition to Berkshire’s stock portfolio that’s valued at over $300 billion right now. I know this doesn’t look like the website of a $700 billion company, but the impressive thing is that they didn’t have to spend money on a website to get people interested.

I’ve often said if I can only buy one stock in the market, it would be Berkshire. This is why. Because it’s such a diverse array of businesses. It’s like buying an ETF in a sense if the person running that ETF was Warren Buffett and his team, and with the rules that you can buy whole businesses which ETFs can’t do and invest in common stocks and get deals like Buffett can get.

A lot of people ask, how can I invest like Warren Buffett? My response usually is you can’t because he gets deals that other people can’t. His Occidental Petroleum ( OXY 9.47% ) investment is one that regular investors couldn’t get. I’m not talking about the one he just made. The one he made a long time ago where he gets a preferred dividend that could be paid in cash or stock. It’s like a 10% dividend yield a year that you couldn’t get. His original Bank of America ( BAC 0.54% ) investment.

Jason Hall: Yeah, those warrants, man.

Frankel: It was in the form of preferred stock that didn’t exist for the public and they gave him warrants to convert it into the common stock that they own today. But if you see this giant collection of 60-something businesses, Berkshire makes the bulk of its money from four.

Some of these are recession prone. See’s Candies. If it’s a recession being marketed by a lot of buyers, spend as much discretionary money on candy. NetJets, people would cut back on corporate travel in a recession, things to that effect.

But the four biggest businesses or one Berkshire’s insurance business, which consists of Geico. There’s a few other insurances if you see, they always sit under Berkshire Hathaway. There’s Berkshire Hathaway Specialty Insurance, Berkshire Hathaway Guard Insurance companies, things like that. There’s General Re which is a big one.

Hall: General Re is a pretty giant too.

Frankel: The insurance business is a big one. That’s very recession-resistant. People are going to pay their car insurance no matter what. No. 2 is its Apple ( AAPL 0.65% ) investment, which is over $100 billion. That’s its No. 2 biggest asset. No. 3 is the railroad. If you see BNSF right there, that’s a railroad they acquired several years back that is a completely essential part of American infrastructure.

Hall: I think it’s still the largest railway.

Frankel: Yeah, still it’s the largest railway.

Hall: Yeah.

Frankel: Then No. 4 is Berkshire Hathaway Energy. The utilities businesses that Berkshire owns. Very recession-resistant business. Don’t be fooled by some of the companies you see here being recession prone. The bulk of Berkshire’s revenue comes from pretty safe investments. Guys, do you both own Berkshire, and what are your thoughts on the stock?

Hall: Tyler’s muted so I’ll go first here. Just some interesting things. I don’t own Berkshire, but I’m very close to buying. I’ve been getting closer and closer over the past year or so. It’s the largest infrastructure company in North America. Something Buffett pointed out on his latest shareholder letter that came out a weekend ago. This weekend was a week ago.

Over $150 billion in infrastructure assets is the largest railway. One of the largest if not the largest. It’s the largest equity portfolio I think, of any company that’s not an asset management company. The largest insurance conglomerate. Collection of insurance assets. Matt, I don’t think there’s any other insurance company that’s close to Berkshire size now. Is there?

Frankel: Not including its reinsurance operations and all that.

Hall: It’s enormous. The point is it’s not just that it’s so diversified, but you are buying the largest of multiple really durable, anti-fragile businesses with lots of incredible economic advantages and competitive advantages. It’s just a wonderful business. Tyler, do you own Berkshire?

Crowe: It’s about 5% of my portfolio.

Hall: That’s a yes.

Crowe: Yeah, I own it. Like we’ve talked about it a lot. Here’s the great part. You could analyze it for days and days or you could completely forget about it in your portfolio and just leave it there and let it do its thing. I think it’s a great company. I barely think about it. It’s just there in my portfolio making money and it’s like great, just keep doing what you’re doing. I’ll check in every couple of years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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