It's been an incredibly rough past four weeks for investors, and the rapid global spread of coronavirus disease 2019 (COVID-19) is to blame. This lung-focused illness has been confirmed in nearly 219,000 people and is responsible for more than 8,800 deaths, according to Johns Hopkins University as of early March 19. While stringent mitigation measures designed to ensure that the global healthcare system doesn't become overwhelmed are necessary, these actions have also ground economic activity to a near-halt.
The result has been a complete beatdown for global stock markets, and significant paper losses for even the most storied investors.
For instance, Berkshire Hathaway (BRK.A -0.83%) (BRK.B -0.86%) CEO Warren Buffett is often considered the greatest investor of our time. In over five decades, he's helped to create in excess of $400 billion in shareholder value for Berkshire, and has run circles around the S&P 500's aggregate return since the beginning of 1965.
The Oracle of Omaha has also seen his fair share of recessions and stock market corrections. This coronavirus crash, which has seen 29% wiped off of the S&P 500 in about a month, has now reduced the size of Berkshire's portfolio by approximately $90 billion. That works out to a loss of 35%.
Yet, surprisingly, not all of Buffett's 52 held securities have nosedived. While my prognostication that the debt levels of some of Buffett's holdings would come back to haunt him has proved somewhat accurate -- see the wipeout in the airline industry as a perfect example – he's had three investments stand out for their outperformance in the wake of this market meltdown.
National grocery chain Kroger (KR 0.30%) is a relatively newer holding for Buffett, with the Oracle of Omaha first buying a stake during the third quarter of 2019 and adding to that position in the subsequent quarter. Since the stock market peaked on Feb. 19, shares of Kroger are higher (yes, higher) by 15%.
Although there have been few beneficiaries of COVID-19 spreading across the United States, supermarket chains are most definitely one. With mitigation measures ranging from social distancing to complete lockdowns, consumers have been buying considerably more than they typically would at the grocery store. This will likely translate into improved profitability for Kroger, albeit investors should keep in mind that grocery store margins tend to be very low, so they should keep their expectations in check.
It's also worth noting that this sizable uptick in consumer spending at Kroger chain stores will allow its "Restock Kroger" growth initiative to shine. Introduced in 2017, Restock Kroger relies on its omnichannel presence to make shopping more convenient for the consumer, while also pushing higher-margin items on shoppers.
Procter & Gamble
Along the same lines as Kroger above, household goods producer Procter & Gamble (PG 0.72%) has held up far better than the broader market. Compared to the noted 29% plunge in the benchmark S&P 500, P&G has seen its share price retrace by a more pedestrian 6%.
The secrets to Procter & Gamble's success during the coronavirus crash are threefold. First of all, P&G makes cleaning supplies and toilet paper, which in many cases have topped consumers' shopping lists. Procter & Gamble is behind popular names such as Charmin, Bounty, Puffs, Gain, and Tide, to name a few.
Secondly, P&G predominantly provides basic-need goods. Think about it this way: Consumers are going to need to brush their teeth, do their laundry, and buy toilet paper regardless of how poorly the U.S. economy is performing. This gives P&G quite a bit of predictability to its cash flow, as well as a lot of pricing power.
Third and finally, Procter & Gamble is working on one of the longest dividend increase streaks among publicly traded companies -- 63 years. Dividend stocks are often profitable and have time-tested business models, making them perfect to buy during uncertain times.
Lastly, we've seen warehouse club Costco Wholesale (COST 0.33%) hold up exceptionally well in the face of rampant selling pressure. Shares of Costco, which the Oracle of Omaha has owned since the second quarter of 2000, have declined by slightly less than 5%, equating to a 24-percentage-point outperformance relative to the broad-based S&P 500.
If you're noticing a theme here, it's that coronavirus-induced panic has sent consumers to grocery stores and warehouse clubs in droves to stock up on food, cleaning supplies, and other household goods. That boded well for Costco, whose members buy goods in bulk.
I think it's worth pointing out just how important the membership model has been for Costco Wholesale as coronavirus panic has manifested among the public. Not only do membership fees account for a substantive portion of Costco's annual profits, but these fees make consumers think twice about shopping anywhere else. This has played a key role in keeping Costco's store jam-packed during this crisis.
Costco also has a track record of undercutting its competitors on price. That's because it utilizes its size to buy in bulk, then passes along those discounts to its members. It looks like a great deal with Costco's margins on these items being very thin, but it doesn't account for those juicy membership fees that bolster its margins.
In short, if you want to outperform in this crazy market, basic-need goods appears the way to go.