Fears of inflation are mounting again, especially with the prospects of steep tariffs on imports to the U.S. Consumer sentiment is plunging the furthest in years. Unemployment claims are rising. The S&P 500 is valued at a historically high level.
Perhaps, unsurprisingly, Warren Buffett appears to be battening down the hatches. The multibillionaire investor has been a net seller of stocks for nine consecutive quarters, leading Berkshire Hathaway to amass the largest cash stockpile in the company's history.
Buffett isn't one to predict a major market meltdown. However, he wrote in 2001 that investors are "playing with fire" when the ratio of the total U.S. stock market capitalization to gross domestic product (GDP) approaches 200%. This ratio, commonly known as the Buffett indicator, is now above 200%.
If a huge market sell-off does come, though, Buffett's Berkshire Hathaway portfolio includes some good stocks to own to ride out the downturn. Here are the three best Buffett stocks to own if the stock market crashes.
You can rest assured that Buffett won't dump Berkshire's shares of Coca-Cola (KO 0.48%) if the market tanks. Berkshire has owned a position in Coca-Cola longer than any other stock. It ranks as the conglomerate's fourth-largest holding. Buffett also wrote in his 2023 letter to Berkshire Hathaway shareholders that Coke is one of a handful of stocks he plans to "maintain indefinitely."
Why should you own Coca-Cola if the stock market crashes? One key reason is that it's in the consumer defensive sector. Stocks in the consumer defensive sector are widely viewed as safe havens during economic downturns. That's because they make products that consumers typically buy regardless of what's going on in the economy or stock market.
Coca-Cola's market cap of over $300 billion makes it one of the largest consumer defensive stocks. The food and beverage giant is also one of the bluest blue chip stocks, which are considered less risky because of their strong financial position and reputation.
Another nice plus to owning Coca-Cola is that it will pay you to wait until the stock market rebounds after a crash (which it will do sooner or later). Coke is a Dividend King with 63 consecutive annual dividend increases and a forward dividend yield of 2.88%.
Go to Berkshire Hathaway's website, which lists its subsidiaries. You'll see a link to Kraft Heinz (KHC 0.20%). No, Berkshire doesn't run the company. However, it owns a hefty 27.3% stake in Kraft Heinz.
Like Coca-Cola, Kraft Heinz is in the consumer defensive sector. The company markets a wide line of food and beverage products, including Capri-Sun juices, Heinz ketchup, Jell-O gelatin, Kool-Aid flavored drink mixes, Kraft macaroni and cheese, Maxwell House coffee, Oscar Meyer weiners, and Velveeta cheese. Americans will likely continue buying these products no matter what happens with the stock market.
Another factor working in Kraft Heinz's favor is that its stock is already cheap, while many stocks are expensive. Kraft Heinz's shares trade at a forward price-to-earnings ratio of 10.5 compared to an average forward earnings multiple of 22.3 for S&P 500 consumer staples stocks.
Kraft Heinz isn't a Dividend King like Coca-Cola. However, it will pay you even more handsomely to bide your time if the market sinks. The company's forward dividend yield is a lofty 5.22%.
Kroger (KR 1.39%) isn't one of Berkshire's biggest holdings; it makes up only 1.1% of the conglomerate's total portfolio. The grocery company isn't on Buffett's list of "forever stocks," either. However, Kroger should be a good stock to own if the market crashes.
You probably won't be surprised that Kroger, like Coca-Cola and Kraft Heinz, is in the consumer defensive sector. It's arguably a better defensive pick than the other two Buffett stocks on our list. If economic conditions are especially tough, consumers might cut back on the kinds of branded products Coke and Kraft Heinz sell. However, they won't quit going to the grocery store.
Granted, Kroger's forward dividend yield of 1.97% is lower than Coke's and Kraft Heinz's yields. On the positive side, though, Kroger stock has consistently outperformed Coca-Cola and Kraft Heinz. Its share price has risen much more than either of those stocks over the last 12-month, three-year, and five-year periods.
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