The stock market hasn’t performed well this year. As of this writing, all three major U.S. market indexes are comfortably in negative territory for the year with the worst-performing of the bunch, the Nasdaq Composite Index, down by 11%. Given current geopolitical tensions and their effect on worldwide economies, many investors might fear that we will experience a market crash at some point this year.
Of course, no one knows whether that will happen, but it can’t hurt to prepare in advance. And in doing so, it’s worth taking a page out of Warren Buffett’s playbook. The Oracle of Omaha is known for not fearing downturns since they can present great opportunities to buy shares of excellent companies on the dip. Let’s look at two of Buffett’s favorite stocks that might be worth loading up on in the next market crash: Apple ( AAPL -0.49% ) and Berkshire Hathaway ( BRK.A 2.22% ) ( BRK.B 2.25% ).
At first glance, Apple might not seem like the kind of company investors might want to bet on during a downturn. After all, the tech giant is best-known for its sleek technology products, most notably its iPhone. While the quality of Apple’s hardware is top of the line, the company’s products aren’t known for being cheap. When economic troubles hit and lead to a market crash, consumers might choose to cut back on products like the iPhone first.
But let’s look at the bigger picture. Historically, bear markets have lasted 9.6 months on average. By contrast, bull markets have lasted 2.7 years.
Economic recessions also tend to be shorter than expansions. Even if Apple suffers during the next downturn (whenever it happens), investors can rest assured that it will perform exceptionally well once things settle. After all, the company has soundly beaten the market in the past three years, a period that includes the recession and bear market caused by the COVID-19 pandemic.
Further, Apple is looking to decrease its reliance on its hardware. To be clear, the company’s products segment still makes up the bulk of its revenue. During its 2021 fiscal year — which ended on Sept. 25, 2021 — Apple racked up $365.8 billion in total net sales, 33.3% higher than the previous fiscal year.
The company’s products unit accounted for about 81% of its net sales. The good news is Apple’s services segment — where it offers such things as iCloud, Apple TV+, Apple One, Apple Music, etc. — is becoming increasingly important for the company and offers much higher margins. Last fiscal year, Apple’s products segment reported gross margins of 35.3%, compared to nearly double that for the services segment of 69.7%.
Given the powerful brand name it has built as a leading tech company, Apple will continue generating solid sales from its hardware products, at least for the foreseeable future. But the company’s services unit will likely grow in importance thanks to the ecosystem it has built. That should allow Apple to find even more ways to monetize its users and work wonders for its bottom line. That’s why even after crushing the market historically, Apple remains an excellent buy-and-hold stock.
2. Berkshire Hathaway
Warren Buffett clearly loves purchasing shares of the corporation he leads. In the past couple of years, Berkshire Hathaway bought back 9% of its shares that were outstanding as of the end of 2019 — for a total of $51.7 billion. Investors who want to survive downturns and beat the market should consider following Buffett’s lead and load up on shares of Berkshire Hathaway.
This conglomerate wholly owns many notable subsidiaries, including Geico, Fruit of the Loom, Duracell, and more. Berkshire Hathaway boasts an insurance division and a manufacturing unit, and it also owns several energy and utility companies. That is more diversity than investors can typically get by investing in just one stock. And don’t think it’ll stop there.
Buffett and his team have often deployed their huge cash pile to acquire even more excellent businesses. That last point underscores what is perhaps the best reason to purchase shares of Berkshire Hathaway: Doing so allows investors to have both Buffett and the company’s vice chairman Charlie Munger in their corner.
Both are widely considered some of the best investing minds ever. And with these two at the helm, Berkshire Hathaway has historically crushed the market while surviving many economic recessions and market downturns.
Having proven they know how to lead a highly successful business, Buffett and Munger — both in their 90s — have reportedly already chosen who will lead the company next. The chosen one’s name is Gregory Abel, vice chairman of Berkshire Hathaway’s non-insurance operations. Munger himself has emphasized that Abel will keep the culture of the company.
That’s all the insurance which investors need to know — that Berkshire Hathaway should continue performing well for many years to come. If the company’s shares plunge in a market crash this year, initiating a position looks like it would be a great move.
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.