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With Recession Looming, These Are My 5 Highest-Conviction Stock Holdings

By Matthew Frankel, CFP® – Jun 17, 2020 at 6:23AM

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Why these names make up about a quarter of this Fool's portfolio.

As of this writing, I own 45 different stocks, but they aren't all the same types of investments. Some are smaller, more speculative positions, while others are make up a rather large portion of my portfolio. And, some are quite recession-prone, while others should do just fine even in a tough economy.

For me, my highest-conviction stocks are also the largest holdings in my portfolio. This certainly makes sense -- the more I believe in a company's long-term potential, the more of my own money I'm willing to put into it. With that in mind, here's why about one-fourth of my stock portfolio is concentrated in Berkshire Hathaway (BRK.A -1.98%) (BRK.B -1.89%), Apple (AAPL 0.05%), Markel (MKL -0.54%), Digital Realty Trust (DLR -0.28%), and Realty Income (O -0.27%).

Ominous dark clouds.

Image source: Getty Images.

My five highest-conviction stocks during the recession

1. Berkshire Hathaway

Many investors are a bit frustrated with Berkshire Hathaway at the moment. CEO Warren Buffett has allowed the company's cash hoard to balloon to an all-time high of $137 billion and didn't make any notable stock purchases in the first quarter. And it has been years since the company has made a meaningful acquisition.

However, I still have tremendous confidence in Berkshire's business going forward. Buffett has an impressive track record of making savvy investments during recessions, and many are made during the recovery period -- not on the way down, like the 2011 Bank of America (BAC -1.19%) investment that Berkshire has made a return of more than 300% on.

2. Apple

Apple is the single largest stock position in my portfolio, and it's one that I've owned for quite some time. The $1.5 trillion tech behemoth has evolved from a hardware-focused growth company into a razor-and-blades type of business with a rapidly growing services business to complement its hardware.

The main reason I'm so confident about Apple is its ultra-loyal customer base (people rarely switch from Apple products to competitors), and the fact that the company continuously finds ways to bring its customers deeper and deeper into its ecosystem. With the upcoming 5G upgrade cycle likely to be the company's largest in years, I wouldn't be surprised to see Apple become the first $2 trillion U.S. company before too long.

3. Markel

Markel uses a similar business model as Berkshire Hathaway. At its core, Markel is an insurance company, with a large presence in the lucrative specialty insurance market as well as a reinsurance business. And, the company uses some of the proceeds from its insurance operations to fund common stock purchases as well as acquisitions of entire businesses.

Unlike Berkshire Hathaway, however, Markel has tons of room to grow. It is roughly 3% the size of Berkshire, and therefore has more optionality when it comes to making needle-moving acquisitions. With an excellent management team and a long-term value creation focus (and still nearly 30% lower than its pre-pandemic high), Markel is the stock on this list that I've added the most to during the pandemic.

4. Digital Realty Trust

I'm a big fan of real estate investment trusts, or REITs. In fact, you'll find 14 different REITs currently in my portfolio. However, my single largest REIT investment is data center REIT Digital Realty Trust.

If you aren't familiar, think of data centers as the physical homes of the internet. Every time you access a cloud-based application, post a photo to social media, or stream content, that data has to physically live somewhere. Data centers are designed to house servers and other networking equipment in a secure and reliable environment.

Demand for data centers should increase sharply in the coming years. More devices are internet-connected than ever before, more software is cloud-based, and more content is being streamed. And with the upcoming wide-scale rollout of 5G, the need for data transmission could grow even faster.

5. Realty Income

Realty Income was one of the first stocks I ever bought, and I've never sold a single share. The company primarily invests in single-tenant retail properties, but also has some office and industrial properties as well.

Now, before you cringe at the word "retail," hear me out. Realty Income's tenants are primarily in industries are aren't too susceptible to recessions or to e-commerce disruption. And most have been open throughout the pandemic as essential businesses. Think dollar stores, warehouse clubs, convenience stores, and fast food restaurants. Tenants sign long-term leases and are required to cover the variable expenses of property ownership like taxes, insurance, and maintenance.

The proof is in the track record. Realty Income will make its 600th consecutive monthly dividend payment in July and has handily outperformed the S&P 500's total return since its 1994 NYSE listing.

The stock prices will fluctuate, but these businesses should do just fine

To be perfectly clear, I'm expecting the entire stock market to take investors on a roller coaster ride until the COVID-19 pandemic is over. However, these five businesses should be just fine, and I've put quite a bit of my own money into each of these stocks as a long-term investment.

Matthew Frankel, CFP owns shares of Apple, Bank of America, Berkshire Hathaway (B shares), Digital Realty Trust, Markel, and Realty Income and has the following options: short October 2020 $800 puts on Markel and long October 2020 $750 puts on Markel. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Digital Realty Trust, and Markel and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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