Key Points
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Berkshire Hathaway has holdings across insurance, railroads, energy, manufacturing, and consumer products.
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Its $359 billion in cash, cash equivalents, and Treasury bills gives it considerable room to maneuver.
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Investors also gain access to the conglomerate’s capital allocation strength and experience.
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Worried about a stock market correction? You’re not alone. After a strong run in equities, concerns about valuations and the sustainability of the artificial intelligence boom have made some investors nervous. Nobody knows when the next correction will arrive, but it’s reasonable to think about how your portfolio might hold up if it does.
One stock I’d consider is Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB). The company is worth a closer look for three reasons: It owns a portfolio of established businesses, holds substantial financial resources, and has the flexibility to invest when attractive opportunities arise.
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A collection of businesses built to endure
Berkshire Hathaway is probably one of the most diverse companies in the world. In addition to owning a stock portfolio, it also owns businesses across insurance, railroads, energy, manufacturing, and consumer products.
Its insurance operations include GEICO. It owns BNSF, one of North America’s largest freight railroads, and has substantial energy operations through Berkshire Hathaway Energy. Its other businesses serve customers across a range of industries. This diversity matters because Berkshire doesn’t depend on a single product or industry to generate earnings.
Of course, a recession can hurt many of these businesses. Consumers may spend less, freight shipments can decline, and insurance claims can rise. So Berkshire is not immune to economic weakness. But its value rests on more than investor sentiment. Its operating businesses provide products and services that customers continue to need, even when confidence in the stock market deteriorates.
For investors seeking resilience, that’s a meaningful starting point. Rather than betting on which stocks will remain popular, they can own a collection of businesses with their own earnings sources.
Berkshire Hathaway has substantial financial firepower
Berkshire’s financial resources provide another advantage. At the end of June, it held approximately $359 billion in cash, cash equivalents, and U.S. Treasury bills, net of unsettled purchases.
Why does this matter? When markets fall sharply, some companies face tighter financing conditions or must raise cash to meet their obligations. Berkshire’s substantial liquidity gives it considerable flexibility to navigate difficult conditions without relying heavily on external financing. It also enables Berkshire to pursue opportunities when prices become attractive.
During a market correction, shares of excellent businesses can fall simply because investors are selling broadly. Berkshire Hathaway can potentially use its resources to buy stocks or acquire entire businesses at more appealing prices. For instance, during the great financial crisis in 2008/09, the company invested billions in such companies as Goldman Sachs and Bank of America.
That doesn’t mean Berkshire will automatically buy when markets fall. Management still needs to find investments that offer an attractive return. But Berkshire doesn’t have to rush. It can wait for opportunities that meet its standards while its Treasury holdings generate interest income.
In other words, Berkshire Hathaway’s financial strength offers both downside protection and upside opportunities.
Berkshire offers a different way to prepare for uncertainty
Investors worried about a correction often feel trapped between two choices: remain fully invested in stocks, or sell everything and wait in cash. Berkshire Hathaway offers another possibility. By owning its stock, investors gain exposure to a diversified portfolio of operating businesses, as well as to a company with substantial financial resources and an investment portfolio.
But more importantly, investors gain access to the capital allocation skills and opportunities that the conglomerate has developed over the decades under prior CEO Warren Buffett and his team, including successor Greg Abel.
This combination of huge cash flow-generating capacity from its operating business and management’s willingness and capacity to invest heavily across a diverse industry makes the stock a compelling one to consider when market uncertainty arises.
What does it mean for investors?
Nobody knows when the next stock market correction will arrive. Rather than trying to predict it, investors can focus on owning businesses with durable operations, strong finances, and the flexibility to navigate difficult conditions.
Berkshire Hathaway has several of these qualities. Its operating businesses generate earnings, while its substantial cash and Treasury holdings give it room to maneuver when markets become unsettled. All told, investors can consider adding the stock to their long-term portfolios.
Should you buy stock in Berkshire Hathaway right now?
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Bank of America is an advertising partner of Motley Fool Money. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Goldman Sachs Group. The Motley Fool has a disclosure policy.
