Warren Buffett's Hand-Picked Successor, Greg Abel, Has 30% of Berkshire Hathaway's Portfolio Invested in Apple and Alphabet. But There's an Under-the-Radar Berkshire Stock That Is My Top Pick for July.

Greg Abel has a tough act to follow in replacing investing legend Warren Buffett as CEO of Berkshire Hathaway. But Abel has already shown, in just a few months on the job, that he is not afraid to make changes.

One of his biggest is boosting Berkshire's position in Alphabet, which now makes up about 9% of the portfolio and is a top-five holding. The combination of Apple and Alphabet accounts for almost 30% of the Berkshire Hathaway portfolio.

But right now, an old Buffett play, Kroger (NYSE: KR), might be one of the better Berkshire Hathaway stocks to own. Here's why.

Image source: The Motley Fool.

Why Kroger is a sneaky good buy

Kroger, the nation's largest grocery store chain, has been in the Berkshire Hathaway portfolio since 2019. Last quarter, it made up about 1.4% of the portfolio, with no shares bought or sold by Abel.

Kroger is a classic defensive play. Groceries are needed whether the economy is good, bad, or somewhere in between. So, as the largest grocery store chain, it is built to outperform during an extended market dip. In the 2022 bear market, Kroger stocks held up well, down about 1% in a year when the S&P 500 (SNPINDEX: ^GSPC) was off 19% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) sank 33%.

This year has been a microcosm of Kroger's defensive attributes. In the first quarter, when the Nasdaq entered a correction and the S&P 500 was down, Kroger stock rose by some 21% to more than $75 per share in March.

Then, as the market stormed back in April and May, Kroger shares sank back down to their current $58 per share, down around 5% year to date. It hit a 52-week low of $55 per share at the end of June. It is currently trading at about 34 times earnings but just 11 times forward earnings. Its five-year PEG ratio is even lower at 0.57, well below 1, which means it is undervalued.

Trading near a 52-week low

It's hard to say when the market will undergo another correction, but valuations have surged back up, and economic indicators remain somewhat weak. Investors should be cautious and focused on building a carefully balanced and diversified portfolio.

That's where Kroger comes in. This is a great time to add a strong defensive stock to your portfolio at a 52-week low to have that downside protection during the next dip.

Wall Street is bullish on Kroger, with analysts setting a median price target of $72.50 per share. That would represent about 24% upside over the next 12 months.

In addition, Kroger has an excellent dividend, yielding 2.63% with a low payout ratio of 21%. That suggests the company has more room to increase that dividend. Kroger has consistently raised its dividend over the years, with 19 straight years of annual dividend increases.

Kroger may not be glitzy like a "Magnificent Seven" stock or a highflier, but right now is a particularly good time to buy this strong defensive stock.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.