Inflation rates rise, but this does not affect these stocks.
Stock markets were broadly lower on Wednesday after a disappointing inflation report. The consumer price index (CPI) in March rose 3.5% over the past 12 months. This is higher than the 3.2% in February and the 3.4% expected by economists. This is also the highest rate since September 2023.
The market did not take this news well. There were hopes that inflation rates would continue to fall, which would eventually trigger the Federal Reserve to lower interest rates sooner rather than later.
However, the March inflation results may suggest that the Fed may not begin to ease interest rates as much as some expected. All eyes will be on the Federal Reserve’s main inflation indicator, the Personal Consumption Expenditures (PCE) index, which is released on April 26th.
Investors have already seen the worst when it comes to inflation, but to balance things out, if you’re looking for stocks that are largely resistant to inflation, look no further. Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).
The house Buffett built is strong.
Berkshire Hathaway Chairman and CEO Warren Buffett and the late Charlie Munger founded the company in precisely these times to withstand market shocks such as inflation rates rising to 40-year highs in 2022.
The conglomerate primarily consists of a $350 billion stock portfolio and about 70 privately held companies it owns, including brands such as GEICO, Dairy Queen, Benjamin Moore, Duracell, and Business Wire.
Among the companies Berkshire owns are several insurance companies, including companies it manages such as Berkshire Hathaway Specialty Insurance, Berkshire Hathaway GUARD Insurance Companies, GEICO, and others.
Berkshire Hathaway uses float from insurance companies to invest in a large portfolio of stocks. It also owns railroads, energy and utility companies, industrial companies, manufacturing companies, retailers, construction and construction companies, and consumer staples and services companies.
Buffett and his team carefully look at these companies and those in Berkshire’s stock portfolio, adhering to Buffett’s philosophy of investing in well-managed, good value, consistent profits, and generally healthy and stable businesses across a variety of sectors. You have selected. An industry with a long history of success.
This formula has worked well for Berkshire Hathaway over the years and has allowed the company to effectively manage the ups and downs of the market over the past 50-plus years.
Consider the consequences. When markets fall, Berkshire Hathaway usually rises. In 2022, stocks rose 3% in a year in which the S&P 500 fell 19%, largely driven by higher inflation and rising interest rates. In 2018, when the market fell 6%, Berkshire Hathaway rose 3%.
Over the past 10 years, Berkshire Hathaway has returned an average of 12.7% per year, compared to 10.6% for the S&P 500. Looking back 20 years, the average annual return was 9.8% compared to 7.8% for the S&P 500.
Buy anytime
One of the reasons Berkshire Hathaway performed so well during the most recent bear market is because it has a wealth of companies in industries that don’t fluctuate much with economic conditions. For example, companies in the consumer staples, energy and insurance sectors are not affected by inflation as they are needed regardless of the environment.
In fact, Berkshire Hathaway’s insurance holdings have performed better in bear markets. Insurance companies actually do quite well during periods of high inflation because premiums are rising, but people still need insurance.
The proof is that Berkshire Hathaway reported a record operating profit of $30.9 billion in 2022, and surpassed this record again by generating an operating profit of $37.4 billion in 2023. However, gains in the privately held business portfolio in 2022 more than offset unrealized losses in the stock portfolio that year.
Like the companies it invests in, Berkshire Hathaway is built for long-term growth. They probably won’t skyrocket like tech companies in a bull market, but they will generate consistent, reliable returns that investors can count on through good times and bad.
This year’s stock price has risen about 13% since the beginning of the year, and it is undervalued with a price-to-earnings ratio of 9. Berkshire Hathaway is almost always a buy, but it looks especially good right now.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
