A lot of investors -- maybe you're one of them -- are kicking themselves right now for not buying "wish list" companies when the stock market bottomed in March. Of course, timing the market is easy in hindsight and virtually impossible (not to mention extremely risky) in real time.
But it's pointless to dwell on what's past. Instead, focus on the stocks that you can still buy today, at a significant discount to their prices at the beginning of the year. In fact, now is a great time to pick up shares of Waste Management (WM +1.10%), Brookfield Infrastructure Partners (BIP +0.13%), and Berkshire Hathaway (BRK.A 0.04%) (BRK.B 0.30%). Here's why.
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These three companies have a few things in common. First, they're all trading at lower prices than they were on Jan. 1. Second, their 2020 losses have outpaced the stock market's decline. The S&P 500 is down about 6.2% so far this year; all three companies have seen their shares drop further than that.
Perhaps most importantly, these are three reliable, resilient businesses built for the long term. Remember, there's no guarantee that March's lows were 2020's market bottom; some bad news could spook Wall Street tomorrow and send shares spiraling downward. But if we enter a prolonged recession, these stocks should fare comparatively well.
Overvalued no more
What business is more recession-resilient than trash? Waste Management is exactly what it sounds like: a trash specialist. It's the largest trash hauler and landfill operator in North America, and its share price has taken a 6.6% hit this year. Commercial and industrial waste volumes are expected to decline due to business closures. Meanwhile, residential volumes are likely to increase in the short term due to stay-at-home orders, which could compress margins on that side of the business.
These are likely to be temporary hiccups rather than a long-term problems. Instead, Waste Management's biggest ongoing problem has been low recycled commodity prices that have shattered the profitability of its recycling business. Since recycling is an expected service at this point, the only way for Waste Management to cope is to charge more for the service. So far, it's been able to increase its fees gradually without losing many customers.
At the beginning of the year, the company's shares were trading at more than 30 times earnings, which looked overvalued, even for such a reliable outperformer. However, now that the company's stock price has fallen, its price-to-earnings ratio is a still-high-but-bearable 27...and its dividend is 2%. Investors may want to take advantage now.
Diversified value
Infrastructure is another reliable sector during market downturns. After all, can you imagine how we would have gotten through the last two months without working cellphone towers, data transmission lines, and electric grids? Luckily, master limited partnership (MLP) Brookfield Infrastructure Partners holds all those types of assets and many more.
Brookfield's infrastructure assets span the globe and include assets related to energy, data transmission, and transportation. That last sector is why Brookfield's units -- MLP-speak for shares -- have lost 18.4% of their value so far in 2020: Investors were concerned that coronavirus-related travel restrictions would reduce revenue and cash flow from Brookfield's toll roads and mass transit infrastructure.
That turned out to be true in Q1, as funds from operations (FFO) from the transportation segment fell 13.7% year over year. However, those losses were more than made up by the rest of Brookfield's portfolio: Overall revenue shot up 37.9% over Q1 2019 to $2.2 billion, with companywide FFO up a more modest 2%. That leaves plenty of cash to cover Brookfield's distribution -- the MLP version of a dividend -- which is currently yielding 5%.
Brookfield's transportation business should improve as economies reopen, and if it doesn't, its management team has proven to be adept at swapping out low-margin assets in its portfolio for ones generating higher returns. Now looks like a great time to invest.
Battening down the hatches
Master investor Warren Buffett has created a truly extraordinary company in Berkshire Hathaway. The company's core portfolio of insurance businesses churn out dependable cash flow that Buffett and his able lieutenants can deploy to buy stock in top businesses, or just buy top businesses outright.
Or they can hang onto that cash, and that's just what Buffett seems to be doing right now, to the consternation of other big Wall Street investors. In fact, Bill Ackman of Pershing Square Capital recently announced he had sold his entire Berkshire Hathaway position, in part because Buffett didn't seem to be deploying his massive $133.3 billion cash hoard. Pershing Square was looking to invest in stocks with a higher rate of return over the short term.
However, Buffett has always been a patient investor. Even Pershing Square had to concede it thought that "Berkshire will be a strong investment over the longer term." The fact that Buffett isn't throwing his cash around indicates that he's concerned about where the market might be headed. He's already sold his entire stake in the airline industry and exited his position in oil refiner Phillips 66.
With shares of Berkshire down 18.3% year to date, now is a great time to invest in the company.
Risk vs. reward
The current economic situation is fragile, and nobody can say for certain which way things are going to go. That's why it's important to look for stocks that appear to be good long-term values. Waste Management, Brookfield Infrastructure Partners, and Berkshire Hathaway all fit the bill.
