The stock market is starting to look a little less safe. The CAPE ratio recently hit its second-highest reading on record, suggesting the stock market is quite overvalued. Add in continued high inflation, the highest rate for the 10-year Treasury in nearly a quarter century, and a new Fed rate hike cycle, and downside risks seem to be growing by the day.
While that sounds bleak, several stocks have a history of holding up during market turbulence. Six that stand out for their resiliency are Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), Coca-Cola (NYSE: KO), Duke Energy (NYSE: DUK), Johnson & Johnson (NYSE: JNJ), Realty Income (NYSE: O), and WM (NYSE: WM). We saw this during the last bear market in 2022 when they all outperformed the S&P 500, with several ending the year in the green:
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Here’s a quick look at why these six stocks have historically held up during market downdrafts.
Berkshire Hathaway
Berkshire Hathaway owns a diversified portfolio of operating companies, including GEICO, BNSF, and MidAmerican Energy. The company’s insurance, financial services, transportation, energy, manufacturing, service, and retailing operations generate relatively stable earnings, which it retains. Berkshire uses its retained earnings to acquire additional operating companies and to invest in public equities, such as Coca-Cola. It currently has a massive cash balance ($365.5 billion at the end of June, nearly a third of its market cap). That large cash position provides ballast during market downturns, while enabling Berkshire to opportunistically repurchase shares, acquire additional operating companies, and buy more public equities.
Coca-Cola
Coca-Cola owns a portfolio of satisfying beverage brands, including Coke, Dasani, Powerade, and Gold Peak. Demand for its products tends to be durable and steadily rising, enabling it to generate resilient, growing cash flows. That has enabled Coca-Cola to increase its dividend for 64 straight years, qualifying it as a Dividend King (a company with 50 or more years of annual dividend increases). The company also has a fortress balance sheet, which helps it weather storms and make acquisitions when opportunities arise.
Duke Energy
Duke Energy is one of the country’s largest regulated electric and natural gas utilities. It benefits from durable energy demand, while government regulators set its prices. That enables it to generate resilient earnings, which has allowed it to pay dividends to its shareholders for over 100 years (and increase its dividend for more than 20 straight years). Duke has ample financial capacity to expand its operations and is currently executing a $103 billion capital investment plan through 2030, which should support 5% to 7% annual earnings-per-share growth. The company’s combination of durable cash flows and stable growth significantly reduces the volatility of its stock price.
