Many economists predict that a U.S. recession is on the way. Even the Federal Reserve now believes that the chances of an economic downturn have increased.
What does Warren Buffett think? He probably wouldn't tell you. The legendary investor maintains that "near-term economic and market forecasts are worse than useless."
However, we can make a pretty good guess as to what Buffett would do if a recession comes. Here are the three stocks he would be most likely to buy.
1. Berkshire Hathaway
Buffett firmly believes that his own Berkshire Hathaway (BRK.A 0.99%) (BRK.B 0.91%) is "more broadly aligned with the country's economic future than is the case at any other U.S. company." If the U.S. economy turns south, it's likely that Berkshire stock will, too.
But anytime Berkshire's share price is available at a discount, Buffett pounces. He and his longtime business partner Charlie Munger basically have a blank check to use on stock buybacks when they think Berkshire's price is attractive.
Buffett and Munger clearly thought Berkshire's price was right in the first quarter of 2023. Berkshire repurchased $4.4 billion of its Class A and Class B shares. Last year, the company's stock buybacks totaled $7.9 billion.
Few are as optimistic about the long-term prospects of the U.S. as Buffett. He knows that the economy will bounce back from a recession, just as it always has. And with Berkshire's strong linkage with the U.S. economy, Buffett realizes that the stock is practically a sure-fire bet when its valuation is lower.
2. Occidental Petroleum
Buffett has aggressively bought shares of Occidental Petroleum (OXY 0.56%) more than any other over the last few quarters. He is especially confident in the leadership of the oil company's CEO, Vicki Hollub.
Berkshire invested another $127 million in Occidental in the first quarter of 2023. That increased the conglomerate's stake in the company to 23.8%. Buffett clearly wants to buy even more, though: Berkshire secured regulatory approval last year to acquire up to 50% of the oil producer.
A U.S. recession would give him a great opportunity to add to Berkshire's position in Occidental. The demand for oil and gas typically falls during an economic downturn. This would likely cause Occidental's profits -- and share price -- to decline, as well.
Buffett understands the cyclical nature of fossil fuel prices and the economy. He thinks that Occidental is poised to benefit from positive energy-usage trends over the coming years. Otherwise, he wouldn't be betting so heavily on the stock.
3. Apple
Aside from Berkshire Hathaway itself, Apple (AAPL 0.51%) ranks as Buffett's favorite stock. We know that not only from the multibillionaire's words, but also from his actions. Buffett has invested Berkshire's money more heavily in Apple than any other stock -- by far.
Would Buffett buy even more shares of Apple during a recession? It's highly likely.
In the first quarter of 2022, Berkshire purchased around $600 million in additional Apple stock. Buffett told CNBC last year that he would have bought even more if the stock price had remained low.
Like most stocks, Apple would probably fall during a recession. If the decline was significant enough, it's a pretty good bet that Buffett would increase Berkshire's stake in the tech giant.
Importantly, Buffett believes that Apple is a great business with solid long-term prospects. He is also a big fan of Apple CEO Tim Cook, stating in an interview with CNBC last month that Cook has managed the company "in an extraordinary way."
Should you buy these stocks in a recession, too?
As previously mentioned, Berkshire Hathaway, Occidental Petroleum, and Apple shares are likely to fall during an economic downturn. There are other stocks you can buy that should perform much better during a recession.
However, I think that investors wouldn't go wrong by buying any of these three stocks if the U.S. economy enters a recession. Berkshire, Occidental, and Apple should be solid winners over the long term.
