Berkshire Hathaway (BRK.A 3.75%) (BRK.B 4.02%), the conglomerate led by Warren Buffett, is sitting on a massive $128 billion in cash, and the COVID-19 coronavirus pandemic is just the type of situation where the company loves to deploy its capital. As Buffett has said, he likes to be greedy when others are fearful and fearful when other are greedy, and there's no question that fear is abundant in the markets right now.
With that in mind, here's why I think Buffett and the rest of Berkshire Hathaway's stock-picking team should take a closer look at Realty Income (O 1.76%), Starbucks (SBUX 3.87%), and Walt Disney (DIS 3.69%) during the coronavirus downturn.
Stable income at a discount
There are few companies whose revenue won't be disrupted at all by the coronavirus pandemic, but Realty Income is pretty close.
If you aren't familiar, Realty Income is a real estate investment trust, or REIT, that specializes in single-tenant net-lease real estate, mostly occupied by retail tenants. Now, we all know that many retailers are shut down, and it's inevitable that some could end up facing tough financial times in a prolonged shutdown.
However, most of Realty Income's tenants are businesses that are still open and will continue to be. Sure, a few could face problems, such as the roughly 6% of the portfolio that is made of AMC and Regal movie theaters. However, most of the other top tenants aren't likely to close -- and in many cases could do even better. Just to name a few, Walgreens (NASDAQ: WBA), 7-Eleven, Dollar General (NYSE: DG), FedEx (NYSE: FDX), and Walmart (NYSE: WMT) are among Realty Income's top 10 tenants.
Realty Income's business is designed for consistent, growing income in good times and bad. In fact, the company recently declared its 106th dividend increase since listing on the NYSE in 1994, and the monthly payout has never been reduced. That's the kind of consistency that Buffett loves.
A rock-solid brand that isn't going anywhere
Coffee giant Starbucks recently announced that it would switch to a drive-through-only business model while the coronavirus pandemic is ongoing, and this will undoubtedly hurt sales in the short run. After all, only about 60% of Starbucks locations even have drive-through service available. The move is currently set to last for two weeks, but it wouldn't be surprising to see it extended.
However, don't forget about Starbucks' amazing brand power and industry-leading technology, which have combined to generate fantastic sales growth over the past few years. Simply put, people who have enjoyed sitting in Starbucks' coffee houses and enjoying the company's at-home products aren't going to stop once the coronavirus pandemic subsides. The company is financially strong, is generating more revenue during the crisis than most other food and beverage chains (90% of the company's China stores have now reopened) and has tremendous pricing power. Buffett and his team don't own Starbucks stock yet, but I wouldn't be surprised to see it added while the stock is down more than 40%.
A powerhouse media conglomerate at a five-year low
Let's be perfectly clear. Disney's business will suffer because of the coronavirus shutdown. Its movie studio can't release films in the traditional manner while theaters are closed, its ESPN network has virtually no live sporting events to show, and its cash-cow theme parks and cruise line are likely to be closed for longer than originally expected.
However, once this passes, Disney's brand will be as strong as ever. Moviegoers will still line up for the latest films in the company's numerous franchises, and Disney's parks will still attract massive crowds. In fact, I wouldn't be surprised if Disney beats expectations after the outbreak passes because of built-up demand for its products and attractions.
Simply put, Disney owns some of the most powerful brands in the world and has demonstrated its pricing power over and over again, especially when it comes to its parks. And with the stock more than 40% below its highs, it could be a great time for value-seeking investors to get in.
Will Buffett buy any of them?
To be perfectly clear, nobody knows what Buffett and his stock-pickers are buying right now, and there's no evidence that any of these three have been added to Berkshire's portfolio. However, all three have some of the major characteristics Buffett loves to see, and I'd be shocked if Buffett isn't already starting to deploy a significant portion of the company's $128 billion stockpile of cash in the beaten-down stock market