The stock market has rallied sharply since the March lows, and the tech-heavy Nasdaq has never been higher. So it might seem that all of the great buying opportunities have passed us by.
However, there are still some great stocks trading at attractive valuations from a long-term perspective, especially if you venture outside of the high-flying tech sector. With that in mind, here's why Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%) and Simon Property Group (SPG -0.06%) should be on the radar of patient investors who are willing to ride out the short-term ups and downs.
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Don't be so quick to give up on Buffett
It's not like Berkshire Hathaway to underperform the market during tough times. Berkshire's portfolio of subsidiary businesses is largely recession-resistant, filled with insurance companies, transports, utilities, and other essential businesses. But that's exactly what's happened so far in 2020 – Berkshire has lost 21% of its market value, compared with just a 4% year-to-date drop in the S&P 500.
The reason is that investors seem to be losing faith in Warren Buffett's investment ability. Berkshire's cash hoard has grown for years, and many were highly disappointed to see that not only did Berkshire's cash stockpile grow to $137 billion at the end of the first quarter, but that Buffett has actually been a net seller of stocks. With so many dirt cheap stocks, many shareholders (myself included) were hoping to learn that Buffett was finally able to put money to work.
That said, I'm not giving up on Buffett so quick. So far there has been a lack of acquisition and major investment opportunities because of all the money the government has been pumping into the economy. After all, why would a struggling company come to Buffett for financial help when the government will loan them money for virtually no interest? Once the government support starts to dry up, it could be another story. In short, Buffett has never had anywhere close to this much dry powder to work with during a recession, and I'm still excited to see what he can do with it.
This mall operator might surprise the market
If you're hesitant to invest in any physical retail businesses right now, I can't say I blame you. But I still think Simon Property Group is in a league of its own when it comes to brick-and-mortar retail, and is certainly worth a look at the fire-sale price it's trading for.
Simon is the largest mall operator in the United States, and primarily owns high-end, large-scale malls (malls with "Mills" in the name are Simon properties) and also has the largest share of the outlet shopping market with its Premium Outlets brand. When the pandemic set in, Simon closed all of its properties, but things are coming back in a big way.
Simon recently announced that it has reopened 97% of its malls as of June 29 and expects 100% of its U.S. properties to be open by July 6. And, Simon's tenants have reported higher-than-expected sales since reopening.
The real reason to invest in Simon is that it aspires to be so much more than a retail operator and it has the cash to execute on its vision. Simon's goal is to gradually add mixed-use elements to its malls – think hotels, entertainment venues, office spaces, apartments, and other non-retail elements. Not only does this diversify the company's cash flow, but it also creates natural foot traffic for its retail tenants.
While the weaker mall operators may suffer as department stores and mall-based retailers struggle, Simon could gain market share and see its properties become more productive. And at roughly half of its pre-pandemic share price, now could be a good time for patient investors to look into this beaten-down real estate stock.
Don't expect a smooth ride
These are two well-run companies that have plenty of capital to make it through the tough times, but that's not to say that it will be a smooth upward climb for investors. And if the coronavirus outbreak continues to get worse before it gets better, all three of these (along with the stock market as a whole) could be under serious pressure.
However, both of these companies should do just fine over the long run. There's no reason to lose faith in Warren Buffett and his team as an investment manager, and no reason Simon's long-term vision of mixed-use properties can't still happen. Investors will just need to have some patience along the way.
