Warren Buffett had a lot of interesting things to say recently in a discussion with CNBC’s Becky Quick, but a few really stood out to us.
Asked whether the economy is in a better or worse place than six months ago, Buffett was unequivocal. He first mentioned a business in his portfolio experiencing a 22% sales decline. He followed with a comment about how some Berkshire Hathaway businesses are holding their own in terms of sales but only because of orders placed quarters ago. He continued that many businesses will struggle in this environment. It’s clear where he thinks earnings reports are headed: south bound.
- Warren Buffett inferred that the economy is in a worse place than it was 6 months ago. He forecasts that many businesses will struggle in this environment.
- The Oracle of Omaha believes that utilities and insurance are two sectors that will hold up well against a coming economic storm. He says that his own insurance operation is likely to grow this year, and he believes that utilities are essential services that will continue to be in demand even during a recession.
- 3 utilities and 3 insurance stocks that could withstand economic headwinds, include: American Electric Power, Sempra Energy, and Dominion Energy. The insurance stocks are MetLife, Markel, and UnitedHealth.
2 Sectors To Remain Strong
Perhaps as interestingly, Buffett cited two sectors that he believes will hold up well against a coming economic storm: utilities and insurance.
He believe his own insurance operation is likely to grow this year, though added the disclaimer that you can never quite be sure in the insurance business. Utilities also should fare well against economic headwinds.
By contrast, he is seeing a slowdown in his railways business. That’s insightful and reveals overall weakness in the economy. Famously, when FedEx and UPS are struggling, the seams are being ripped in the economic fabric of America. If transportation is down, demand is down and a slowdown in sales and consumer spending should be expected.
3 Utilities To Put On Your Watchlist
Buffett’s comments led us to explore leading utility companies, and here are some top contenders:
American Electric Power is a public utility that has grown revenues 17% year over year to $19.6 billion. It offers a 3.52% dividend yield and analysts have a $101 price target on it.
Sempra Energy is another utility that houses four segments under its corporate umbrella, including the San Diego Gas & Electric Company and Southern California Gas Company. It offers a 3.08% dividend and analysts consensus places fair value at $168 per share.
Dominion is headquartered in Richmond, Virginia and operates through four segments: Dominion Energy Virginia, Gas Distribution, Dominion Energy South Carolina, and Contracted Assets. It yields 4.6% in dividends annually and has upside to $61.42 per share according to 12 analysts.
3 Insurance Stocks To Keep Your Eyes On
MetLife is a leading insurer with a great track record of growth and profitability. It also pays a generous 3.3% dividend and is regarded as a largely recession-immune business, making it a strong candidate for income-oriented investors.
Markel is a specialty insurer with significant upside to $1,469 per share. It’s a somewhat unusual company in that it has a property & casualty insurance business but also has surety bonds and reinsurance arms, as well as a Ventures business that invests in technology, healthcare, and other insurance firms.
United Health is a well-known insurer, that has a strong track record of dividend growth. It offers shareholders a rather paltry 1.27% dividend but 23 analysts have a median upside price target of $590 per share, well-above current levels.