If we knew a recession was coming, most investors would stop putting money into the stock market. To be fair, most stocks would likely fall -- at least a little -- if a recession were to arrive in the United States.
First, a recession is coming. The only question is whether one happens soon, or at some point in the future. Historically, a recession happens in the United States every six to seven years and is a normal part of the economic cycle. So, it's smart for investors to take a look at recession-resistant investments, regardless of what happens in the coming weeks or months.
With that in mind, while nobody can accurately predict when a recession will arrive, one stock that I'd be completely comfortable buying shortly before a recession is Berkshire Hathaway (BRK.A 0.16%)(BRK.B 0.10%). Not only do I think the Warren Buffett-led conglomerate would perform quite well during a recession, it would be likely to get even stronger because of one.
NYSE: BRK.A
Key Data Points
A collection of great businesses for a fair price
Berkshire is perhaps best known for its massive stock portfolio that features large positions in Apple (AAPL +2.65%), Bank of America (BAC +0.78%), Coca-Cola (KO +0.77%), and many others. But Berkshire Hathaway also owns dozens of businesses in their entirety, and most of them are extremely recession-resistant.
For example, Berkshire Hathaway is an insurance company at its core, and GEICO is its flagship insurer. Even in tough times, people need to pay their auto insurance. Berkshire Hathaway Energy is one of the largest utility companies in the world, and people need to pay their electric and water bills even in recessions. I could go on, but the idea is that if a recession hit, Berkshire's businesses would generally be fine.
Also, don't let Berkshire's $1.14 trillion valuation scare you. This is cheaper than you might think.
If we back out the $334 billion in cash and the $290 billion current value of the stock portfolio, we can see that the market is valuing Berkshire's operating businesses at $516 billion. If we back out investment gains from the stock portfolio and investment income from things like fixed-income investments, Berkshire generated $33.8 billion in operating profit last year. This means that Berkshire's operating businesses are valued at just over 15 times earnings -- a very reasonable price for a collection of top-notch businesses, especially with their recession-resistant qualities.
Unmatched recession-readiness
Berkshire Hathaway has financial flexibility that no other company in the United States can match. At the end of 2024, Berkshire had $334 billion in cash and equivalents on its balance sheet. Warren Buffett insists on always keeping at least $30 billion in reserves, so do the math -- that's a lot of capital Berkshire could deploy if stocks go on sale or if business valuations fall.
In the meantime, Berkshire's cash is generating billions of dollars in interest income every quarter. But it also puts Berkshire in a great position to emerge from a recession even stronger than when it went in.
Berkshire's business would be fine
To be perfectly clear, I would feel comfortable buying Berkshire Hathaway even if a recession was coming because not only would its operating businesses generally be fine, the company would likely come out of a hypothetical recession better off.
Having said that, I would fully expect some volatility in the stock price if a recession were to happen, and it's entirely possible that Berkshire's valuation would take a temporary hit. But even if it did, I'd sleep soundly knowing that my money was in good hands. After all, the S&P 500 has produced negative total returns in 13 separate years since Buffett took the helm, and Berkshire has outperformed the benchmark index in all but two of them. This is a stock that is set up to perform well in turbulent times, and it has the track record to prove it.
