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Global markets experienced a dramatic $6.5 trillion decline, dubbed the "Great Unwind," due to a sudden shift in financial and geopolitical priorities. The Dow Jones plunged over 1,000 points amid fears of economic turmoil but later recovered slightly. Uncertainty remains about whether this stability will persist.
August's market volatility, often linked to lower trading volumes due to vacations, saw Japan’s largest crash since 1987. Warren Buffett's major sell-offs in Apple and Bank of America signaled underlying issues. Despite fears, the economy isn’t in a free fall, with no major financial institution in trouble. The turbulence largely resulted from simultaneous unwinding of yen-funded investments in global assets.
Though these issues look to be contained for now, there are plenty of investors out there concerned another recession could be around the corner. With the un-inversion of the yield curve, the triggering of the Sahm rule, and a myriad of other recessionary signals hitting the market, we could be due for some pain ahead.
That said, as with any market crash, it’s important to safeguard investor portfolio with stocks that remain strong. Here are three stocks I highly recommend investors looking for defensive exposure consider right now.
Key Points About This Article:
- Concerns of a market crash are heating up, and so is interest in much more defensive, recession-resistant stocks.
- These three companies appear to have the fundamentals to support an investor's portfolio during rough patches in the broader economy, if we do see headwinds pick up.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report . It features a software stock we’re confident has 10X potential.
Berkshire Hathaway (BRK-B)
Berkshire Hathaway CEO Warren Buffett
Warren Buffett-led Berkshire Hathaway Inc. ( NYSE:BRK-B ) is an investing conglomerate most are well aware of. That's mostly due to Buffett's allure as one of the greatest investors of all time. If you haven't heard of him, you should definitely do some research on who this guy is, and what he's built over the years.
Many consider Berkshire to be primarily an insurance giant, though the company has diversified holdings across a range of sectors. In fact, Berkshire's largest investment remains Apple, despite Buffett's recent divestiture of 50% of his Apple holdings. Current estimates have Apple pegged at more than 28% of the Berkshire portfolio, worth more than $38.1 billion.
In Q1 2024 , Berkshire's insurance division generated $24.6 billion in sales, making up 27% of the company's $84.6 billion total revenue. Berkshire splits its insurance offerings between GEICO, which handles personal auto and homeowners insurance, and Berkshire Hathaway Primary Group, which focuses on commercial auto insurance. GEICO, one of the largest auto insurers in the U.S., provides stability with its extensive customer base and comprehensive coverage. This insurance base also provides Berkshire with a large float, which it can invest in the best companies, and continue to generate market-beating returns over the long-haul.
In the second quarter, Berkshire Hathaway added positions in Ulta Beauty and Heico and raised its stakes in Occidental Petroleum and Chubb. However, the company also notably reduced its holdings in Apple, Chevron, and Capital One. The company's cash and U.S. Treasury holdings soared to a record $276.9 billion, with $234.6 billion in Treasury bills, surpassing even the U.S. Federal Reserve. That's a cash position defensive investors can get behind, particularly those who think the market is overvalued right now.
Northrop Grumman (NOC)
A U.S. Air Force plane produced by Northrop Grumman
Northrop Grumman Corporation ( NYSE:NOC ) is a top aerospace and defense firm, specializing in Aeronautics, Defense, Mission, and Space Systems. The company designs and builds a range of technologies including aircraft, drones, satellites, and missile systems, primarily for the U.S. government and its allies. Though defense projects often have long development cycles, Northrop Grumman's alignment with government contracts positions it well for growth. The company is advancing the B-12 bomber and nearing completion of the Sentinel program, which is expected to drive significant future revenue.
In Q2 2024, the company reported a 7% increase in net sales to $10.2 billion, driven by growth across all segments. Aeronautics led with a 14% rise in sales, reaching $2.96 billion. The company also recorded a robust backlog of $83.1 billion, signaling ongoing profitability. Additionally, operational income improved by 5% to $1.1 billion.
On July 12, Northrop Grumman’s Cygnus cargo ship, “SS Patty Hilliard Robertson,” departed the ISS carrying 8,200 pounds of supplies . The company also launched two satellites for Space Norway’s Arctic Satellite Broadband Mission and partnered with Boeing on an anti-jamming satellite for the Space Force. Northrop Grumman expects a 15% boost in cash flow by 2026 and plans to increase its dividend.
For those looking for about as defensive of a stock there is in this market (Northrop Grumman is a defense contractor after all), this is a stock worth considering. The company's reasonable valuation and dividend yield of 1.6% are the kickers to consider.
Walmart (WMT)
Image of a Walmart shopping cart outside of a store
Concerned about inflation, Americans increased their spending at Walmart ( NYSE:WMT ), prompting the retailer to raise its annual sales and profit forecasts for the second time this year. Walmart's shares surged 8% to a record high, as the company’s results offered a key view of consumer health amidst recent labor market downturns and recession fears.
Walmart's recent results showed robust consumer spending despite persistent inflation, with signs of inflation easing. CFO John David Rainey noted no additional strain on consumer health, differing from rivals Amazon and Home Depot, which reported consumer caution. Walmart's U.S. comparable sales rose 4.2%, surpassing the expected 3.3%, driven by high demand for fresh produce, quality meats, personal care items, and branded drugs.
Walmart’s higher-income customers drove significant gains in home goods and apparel, boosting online sales by 22% and membership income by 16%. Strong sales continued into August, highlighting Walmart's resilience and effective e-commerce investments. Despite economic pressures, Walmart's grocery strength and store upgrades helped it capture more market share.
For those looking for a way to play the consumer staples sector, Walmart remains a top option right now. We all need to eat and buy the essentials - Walmart is really the cheapest option for most Americans. Accordingly, in good markets or bad, this stock is positioned well to outperform. I'd argue that in bad markets, things may go even better for Walmart.
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