We delve into two mundane companies to buy now that can anchor your portfolio by providing both stability and growth in volatile times.
Dec. 6, 2021
A bedrock stock lays the foundations for your portfolio and is typically a safer investment as they are unlikely to go bankrupt and are usually large-cap companies. These companies are also typically slow growers but provide stability in a diversified portfolio. We examine two companies that have provided stellar returns for shareholders and could be a worthy first investment or addition to de-risk your portfolio.
Berkshire Hathaway (NYSE: BRK.B) is an American multinational conglomerate headquartered in Omaha, Nebraska. The company is led by arguably the greatest investor ever, Warren Buffett, the CEO and chairman.
An investment in Berkshire provides diversification. Despite its primary business being insurance, the company has amassed many subsidiaries across different industries. Berkshire also has an equity portfolio that has been hugely successful with investments in companies like Coca-Cola, Apple, and more. In Q3 2021, the company reported an operating income of $6.47 billion, as many of its businesses benefitted from a rebound.
Berkshire Hathaway also has a colossal cash pile of approximately $149 billion which is the largest in the company’s history, despite share buybacks of $7.6 billion in the quarter. During economic downturns, Berkshire has proven its ability to prosper by accumulating businesses or stocks at depressed prices. This ability to weather downturns is crucial in a bedrock stock.
Although Berkshire’s cash pile can be seen as a positive, it can also have a negative effect as if it is not deployed, inflation will deplete its purchasing power. The duo of Buffett and Charlie Munger have led the company for decades, and their departure at some point in the future is perhaps a risk as it will be a significant change.
Home Depot (NYSE: HD) may not be the first name that springs to mind when one thinks of bedrock stocks but is certainly worthy of its addition. The company has and is the largest home improvement retailer with approximately 2,300 stores.
The company largely avoids competition from online players due to the nature of its products, which are expensive to deliver. The company has proven resilient and has survived an e-commerce boom in recent years and downturns such as the 2008 financial crisis, which many would have expected to decimate its business.
Despite tough comparables due to increased demand in 2020 for home improvements, Home Depot reported revenue of $36.8 billion, representing a growth of 9.8% year-over-year (YoY) in Q3 2021. It also reported a net income of $4.1 billion and has paid a quarterly dividend for many years. Management also stated that “demand has persisted”, and all 19 regions reported positive comparable store sales YoY. This is a positive sign for sustained long-term growth.
Many retailers in the U.S. are experiencing supply chain issues, and although management appears to be handling this well, it is likely to remain a concern for some time. The company is also holding more inventory than before 2020, and a downturn in the housing market could also lead to a slowdown in demand and growth for Home Depot.
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