Key Points
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Berkshire Hathaway has a huge cash hoard, which will soften the hit from a downturn and create buying opportunities.
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Realty Income is a boring business with a high yield backed by a reliable income stream.
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Progressive’s car insurance isn’t optional, and it has a stock light investment portfolio.
There are good reasons to be worried about a bear market. For example, the market hasn’t been this expensive since before the dot-com bubble burst. Couple that with what many on Wall Street are calling the artificial intelligence bubble today, and the similarities are troubling. Then there are the geopolitical conflicts, high leverage worldwide, and inflation. This is a precarious time, and a market crash wouldn’t be at all shocking.
Where is an investor to hide? How about buying these three financial stocks: Berkshire Hathaway(NYSE: BRKA)(NYSE: BRKB), Realty Income(NYSE: O), and Progressive(NYSE: PGR). Here’s a look at why each one might be attractive now.
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Berkshire Hathaway: There’s safety in cash
Berkshire Hathaway is the massive conglomerate made famous by Warren Buffett, one of the most respected investors in modern history. Buffett has handed the company’s reins to Greg Abel, who worked under Buffett for decades. While Abel will do things differently from Buffett, since he is a different person, the company is unlikely to change dramatically. And that’s why it is such an attractive choice if you fear a bear market is on the way.
For starters, Berkshire Hathaway ended the second quarter with more than $350 billion in cash. That number waxes and wanes over time, but if there is a market crash, this cash will provide a cushion for the business, softening the hit. And it will also give Abel ample leeway to use the downturn to buy stocks while others are selling in fear. That is how Buffett used to do things, and it is likely an approach Abel will mimic. If you are preparing for a bear market, you may want to buy Berkshire Hathaway, which is already prepared.
Realty Income is boring and reliable
Rising interest rates and bond yields have left investors downbeat on Realty Income. The stock has declined, and the dividend yield is up to a very attractive 6%. Notably, this real estate investment trust (REIT) has increased its dividend annually for over 30 years, including through the dot-com bubble, the Great Recession, and the coronavirus pandemic. It is built to survive hard times.
What’s notable here is that the stock sank ahead of the dot-com bubble, but rose as the bubble burst and investors shifted into “safer” investments. And while the finance-driven Great Recession was harder on Realty Income, it recovered more quickly than the market. Notably, even during the Great Recession, the REIT’s occupancy never dipped below 96%. If you are looking for a reliable, high-yield dividend stock, Realty Income may be of interest today, even if you are worried about a market correction.
Progressive’s insurance is legally required
Progressive is a large property and casualty insurer, with a heavy focus on auto insurance. You legally have to insure your car, so Progressive has a strong foundation for its business. However, the real story here is a bit more nuanced. Insurance companies collect premiums up front and pay claims later. They can invest the cash, known as the float, in between. Progressive has a $92 billion investment portfolio.
That’s great, but what about a bear market? Not a big deal because Progressive’s equity exposure is just 5% of its portfolio. The rest is largely in bonds, generating interest income. To be fair, today’s rising yield environment will put pressure on the value of Progressive’s bonds. However, if there’s a bear market, bonds are a safe haven investment that will provide the insurance giant with a reliable income stream.
Consider acting now, before the bear eventually arrives
There’s no way to know when a bear market will arrive. The list of negatives in the market, economy, and world could all blow over. But Wall Street history is very clear: every bull market is followed by a bear market (which is then followed by a new bull). So it is just a matter of time before there is a market crash. Now is the time to prepare before fear drives your decisions: Consider Berkshire Hathaway, Realty Income, and Progressive if you are looking at the finance sector.
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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Berkshire Hathaway and Realty Income. The Motley Fool recommends Progressive. The Motley Fool has a disclosure policy.
