Berkshire Hathaway (BRK.A 0.07%) (BRK.B 0.18%) is widely considered to be one of the most recession-resistant stocks in the market, and for good reason. Most of its subsidiaries are designed to produce strong cash flows no matter what the economy does, and the giant conglomerate's diversification largely insulates it from sector-specific headwinds. In this Fool Live clip, recorded on Dec. 6, Fool.com contributors Matt Frankel, Toby Bordelon, and Danny Vena discuss how Berkshire Hathaway's model should allow it to perform well no matter what's going on in the economy or stock market.
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Toby Bordelon: Yeah, Berkshire Hathaway -- this is a stock I've owned for a while too. There's a couple of reasons I think that this would do well in an economic downturn or a market downturn. Especially in a stock market downturn. Because remember, they have a lot of cash. Warren Buffett and his lieutenants like to buy things when the opportunity exists.
There's still a value mindset at Berkshire, so if the stock market crashes, regardless of what the economy does, I think you'll see them buying and taking advantage of the opportunity. Although it did not happen as much in March 2020 as some people were perhaps expecting. But I think you would see that. I think you'd probably see them taking advantage of that, which would be a good thing for them. And I think you would see the stock hold up because of that anticipation from investors that this is probably what's going to happen.
The business itself -- you've got a couple of different areas. You have the energy and industrial business, which is basically Berkshire [Hathaway] Energy and then the railroads. That might suffer a little bit in a long economic downturn -- if production is a little bit lower, you might see energy usage be a little bit lower, but I think generally that's going to hold up fairly well. We're talking about a utility. It should be fairly stable. Then you've got the insurance side, especially the reinsurance side. You can't just stop insuring, buying insurance, just because the economy goes down. That will be a bad move. That's not really day-to-day economic driven as much, is that business.
The stock market portfolio, the equity portfolio would take a hit, obviously, but that would be short term. I think Warren Buffett and Charlie Munger have done a good job of getting people to a point where they can recognize that the day-to-day movements to the stock market are not necessarily correlated with the performance of the other businesses in Berkshire. So Investors are used to that -- I think they're used to that by now. But I think it's a really solid, diversified, industrial, energy, and financial company that would hold up well. And when you think about a market crash, a flight to safety, then people might like that. They might take another look at Berkshire when some of these high-flying growth names start coming down a little bit if we get a market crash.
Matt Frankel: I'll tell you, the only thing that prevented me from ranking Berkshire No. 1 is its stock portfolio. Berkshire's stock portfolio is roughly half of its market cap, and it has some big positions, Apple being one of them. I think Apple (AAPL 0.83%) is something like 20% of Berkshire's market value. Bank of America (BAC 0.63%) is another big one. If any of these stocks were to crash, Berkshire's value would go down for no fault of its own -- nothing wrong with its own business. Not that it would happen, but if Apple got cut by 50%, Berkshire would tank, and through no fault of its own business.
Yeah, people are going to pay their GEICO Insurance premiums no matter what. It would take a really big recession before people would stop paying that. But that's really the only thing that stopped me from ranking Berkshire No. 1 is their stock portfolio, which is a big part of their valuation that's totally out of their control.
Danny Vena: I had similar thinking on that. Warren Buffett has assembled probably one of the more recession-resistant groups of companies overall that anybody has. History has shown that even when the market is tanking -- particularly when the market is tanking -- that Berkshire Hathaway stock does not go down as much as the broader market. It's happened time and again. I think that Berkshire Hathaway certainly deserves the place near the top of the list. I couldn't rank it No. 1 because No. 1 was just so head-and-shoulders above every other company on our list in terms of market performance during the recession that I had to reserve that spot.