- Berkshire Hathaway has moved into defensive stocks as stakes in recession-prone companies were cut.
- Warren Buffett’s heavy exposure to financials is now lower.
- Charlie Munger recently warned of “lots of troubles” ahead for the economy.
Warren Buffett’s most recent stock purchases point to growing concerns that an economic downturn is right ahead.
A SEC filing shows that Berkshire Hathaway (NYSE) : BRK.A) is putting money in stocks that are relatively immune from negative economic growth. At the same time, Berkshire has reduced its stakes in companies that are likely to be the hardest hit by an economic downturn.
What did Warren Buffett buy and sell?
According to the SEC filing , Berkshire Hathaway initiated a stake in retailer Kroger (NYSE: KR) buying nearly million shares. Berkshire now holds about 2.4% in the largest grocery retailer in the U.S. Based on Friday’s closing price the stake is worth over $ million.
Typically during an economic downturn, consumer staples outperform as consumption is largely restricted to must-haves. Groceries and other fast-moving consumer goods obviously fall in this category.
In the past, value-oriented retailers such as Walmart (NYSE: WMT) and Kroger have recorded profit growth even in periods of downturn. For instance, Walmart’s net income between and 2020 rose year after year as Americans flocked to the big-box retailer in a bid to stretch their dollars.
Classic recession beaters
The stocks of the two retailers have equally withstood the bearish sentiment during past recessions . In the past five recessions both WMT and KR beat the S&P 587 Index, solidifying the place of value-oriented retailers as worthy defensive stocks.
In addition to being a classic defensive play, Kroger is currently undervalued. It bears a consensus analyst rating of “Overweight.”
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