Warren Buffett has lived through many recessions, from the inflationary 1970s to the dotcom crash. In fact, Buffett was born the year after the famed 1929 Wall Street Crash and spent his early boyhood amid the depths of the Great Depression. So he knows a thing or two when it comes to buying shares that can do well even when the wider economy is struggling. Here are some ‘Warren Buffett shares’ I would consider buying for my own portfolio.
Buffett’s biggest shareholding is tech titan Apple (NASDAQ: AAPL).
Although the share price is up 12% over the past year, it has tumbled in the past few weeks. But Buffett has been buying, not selling, Apple. During the last financial crisis, Apple suffered. But will that be the case this time round?
I think the company is in a stronger position than it was then. For example, the first iPhone only came out in 2007, shortly before the financial crisis began. These days however, Apple has a massive installed base of smartphone users. While they may trade down to a cheaper model, I think many would continue to buy Apple phones, whatever the economic environment, as they are so tied in to Apple’s ecosystem.
Services have grown in importance a lot over the past decade at the company. Last year they made up 18% of the company’s revenue. They had a gross profit margin of 70% compared to 35% on the company’s products. So, in gross terms, service revenues are twice as profitable to Apple as product sales.
It has a massive competitive advantage – what Buffett terms a “moat” – due to its installed user base, service ecosystem and brand. A recession could hurt revenues and profits. But in the long term I expect the business to keep doing well. I would consider buying these Warren Buffett shares for my portfolio.
Just like I think many iPhone users would stay loyal during a recession, I also think mobile phone services can be seen as a defensive business area in a downturn. While consumers may shop around for cheaper deals, I expect that most people would continue to use their phones, no matter what happens to the economy.
That could be good news for another share Warren Buffet owns – US mobile giant Verizon (NYSE: VZ). But Buffett has recently slashed his stake in the company. He still reportedly owns around $70m of Verizon shares, but that is just a fraction of what he held before.
The Verizon share price has fallen 14% over the past year. It may lack the glamour of Apple, but I think some of the fundamental business drivers are the same. It has a large customer base, many of whom would face switching costs if they moved to another operator overnight. It has a well-known brand in its key US market. Its large network would be hard and costly for a competitor to copy. That helps give the company a Buffett-style moat in my opinion, even if Buffett himself has been a seller lately.
The high expenditure needed to maintain such a network is one risk I could see hurting profits. But I continue to see value in Verizon and would consider buying these shares for my portfolio.