With inflation proving more difficult to control than many experts predicted, and consumers clearly starting to hit the brakes, there is a real possibility of a US recession in the near future. To be clear, we can certainly still see the economic “soft landing” that the Federal Reserve is aiming for, but it is by no means a guarantee.
That's why it can be a smart idea to set up your portfolio with stocks that should do well regardless of what happens with the economy. With that in mind, of the 40 or so stocks in my own portfolio, these are the two I would be least concerned about if a recession were to hit.
An incredible collection of assets that can win in tough times
If I could only own one stock, I probably would Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). For starters, Berkshire isn't just one company. It's more like a diversified investment portfolio, all in one stock.
Berkshire owns more than 60 subsidiaries, including recession-proof giants like GEICO, Berkshire Hathaway Energy and BNSF Railroad. It also has a stock portfolio worth more than $350 billion, which includes huge holdings Apple (NASDAQ: AAPL)Bank of America (NYSE: BAC), American Express (NYSE:AXP)and several others, with most of the portfolio hand-picked by legendary value investor Warren Buffett himself.
Perhaps the biggest reason I like owning Berkshire, even in bad times, is its stock of nearly $168 billion in cash (as of December 31). Even after the $30 billion that Buffett insists on holding in reserves, that leaves nearly $140 billion that currently generates billions in interest income but could be put to work if opportunities arise. Berkshire's financial flexibility has allowed the company to make some big investments in bad economies — including its highly successful stake in Bank of America — so that a recession could ultimately be a net positive for long-term Berkshire investors.
A boring company in the best possible way
Real estate income (NYSE:O) is a real estate investment fund, or REIT, which specializes in detached properties occupied primarily by retail and service businesses. And there are a few good reasons why the economy would hold up just fine in a recession:
The company specifically invests in properties of recession-proof companies, such as discount stores, drugstores and quick-service restaurants. It focuses on retailers who sell things to people needand that could potentially be beneficial when consumers are looking for bargains in tough times.
Realty Income is a net lease REIT. This means that tenants sign long-term leases (10 years or longer), with annual rent increases built in. Additionally, tenants agree to cover property taxes, insurance, and most maintenance costs. All Realty Income has to do is attract a high-quality tenant and enjoy predictably growing income for years to come.
The proof is in the execution. Since its initial public offering in 1994, Realty Income has delivered an annualized return of 13.9%, handily outperforming the S&P500. The stock also has a dividend yield of 5.6% and has increased its monthly payout for 106 consecutive quarters, even during recessions.
These stocks can become volatile
As a final point, it's important to mention this as I think about this companies Things will be fine, or even better, in tough times, but that doesn't mean their stock prices are completely immune to volatility. In tough markets, both can certainly exhibit double-digit percentage swings in a short period of time.
That said, these are best suited as long-term investments, and are designed as value creation machines for decades. Any weakness caused by economic headwinds can be a great buying opportunity, but the bottom line is that these are stocks that should give you a good night's sleep regardless of what's happening in the economy.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in American Express, Bank of America, Berkshire Hathaway and Realty Income. The Motley Fool holds positions in and recommends Apple, Bank of America, Berkshire Hathaway and Realty Income. The Motley Fool has one disclosure policy.
2 stocks I would buy even if a recession hits was originally published by The Motley Fool
