After one of the worst years for the stock market in recent memory, there is some optimism that 2023 will be a little or a lot better (depending on the source). But others contend that we’re not out of the proverbial woodwork yet and that markets could see another correction this year, especially given expectations of further economic slowdown.
As an investor, you want a portfolio that is built for the long term and one that can ride short-term swings. This means you need a diversified portfolio of stocks that react differently to different market environments. Here are two stocks you might want to consider for your portfolio that have what it takes to hold up well in the event of another crash.
1. MasterCard: A flight to quality
During times of market volatility, you often hear investors take a “flight to quality.” This means stock buyers tend to focus more on large, established companies with big brands among their market leaders. These companies are generally well-capitalized, have weathered market ups and downs, and have the earning power to weather any storm.
An example of a quality, all-weather blue chip company was seen in 2022 when turbulent markets rocked S&P 500 Down about 19.4% and Nasdaq Composite decreased by about 33%. Over the same period, credit card companies MasterCard (MA -0.28%) Only 2% decreased. So far in 2023, the stock is up about 8.4%.
MasterCard has remained remarkably stable over the years, primarily because it maintains a monopoly in the credit processing space visa. These two firms control the majority of the credit card and payment processing market due to their vast networks. Other major competing credit card companies maintain their own closed-loop networks, meaning they are both lenders and issuers.
MasterCard does not lend to users — that comes from third-party banks that issue cards and partner with MasterCard. MasterCard generates its revenue from small-percentage fees charged each time a card is used. It has a simple business model with low overhead that is viable in all market cycles. In fact, 2022 was MasterCard’s first year since 2010 when the stock price ended the year.
A recession would not be ideal for MasterCard as it would likely reduce consumer spending. But the company has been through downturns before, and with its duality, its high margins and ongoing gradual shift to digital payments, it has shown an ability to navigate tough times. Over the past decade, the stock has generated 21.9% annualized returns for its investors.
2. Berkshire Hathaway: The Necessities of a Bear
Berkshire Hathaway (BRK.A -1.14%) (BRK.B -1.07%) The company is better known as run by Warren Buffett. For many people, you don’t need to say more than that, because Buffett is considered one of the best investors of all time. And he has the track record to prove it. Since 2009, Berkshire Hathaway has only twice ended the year with negative returns — and neither of those times was last year.
In 2022, when markets were in big declines, Berkshire Hathaway was up about 3.3% for the year. As recently as 2016 when the S&P 500 was down 4% and Berkshire Hathaway was up 3%, the stock has a history of jigging. Over time, the companies created by Buffett and his team have averaged an annualized return of 12.2% over the past 10 years through Jan. 31, beating the S&P 500.
Berkshire Hathaway is a holding company of multiple businesses. The company is best known for its nearly $343 billion investment portfolio of about 40 stocks, which Buffett and his team have built over the years. Three were the largest holdings as of September 30 apple, Bank of AmericaAnd Chevron.
The company also wholly owns or has a majority stake in approximately 65 companies across a variety of industries, including well-known brands such as Dairy Queen, GEICO and Durcel. In addition, Berkshire Hathaway owns several insurance businesses (including specialty insurance), railroads, utilities, and energy companies.
While the stock portfolio has been downbeat this past year, given the bear market, it was buoyed by the performance of its privately held companies, particularly those in the insurance space. Buffett’s strict investment strategy and discipline, and focus on value, have enabled the company to perform relatively well in all market cycles.
Money is a good investment
Berkshire Hathaway’s A shares have a high price-per-share, but the stock is much more affordable if you buy the B shares, which are currently priced at around $310 a share. MasterCard is a bit steep at around $365 per share. But even if you only have $2,000 to invest in each, a handful of shares in each of these companies would be a good investment.
Both Mastercard and Berkshire Hathaway will add some balance to your portfolio if the market endures another correction, and they are both excellent long-term stocks that have beaten the market over the long term.
Bank of America is an advertising partner of The Ascent, a Motley Fool company Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions with and recommends Apple, Bank of America, Berkshire Hathaway, MasterCard and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 calls on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 calls on Apple Motley Fool there is