If a Stock Market Crash Is Coming, This May Be the Best Warren Buffett Stock to Buy

When will the next bear market be? It's impossible to say for sure, but it's never too early to start preparing for a market crash. Investors need not fear downturns too much. With the right strategy, it's possible to emerge from them more or less in one piece. And if there is one on the way, investors may want to consider putting their money in one particular stock that is a favorite of Warren Buffett: Berkshire Hathaway (NYSE:BRKA) (NYSE:BRKB).

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Buffett has bought back billions worth of Berkshire stock in recent years

How do we know that Berkshire Hathaway is one of Buffett's favorite stocks, aside from the fact that it is the company he led as CEO for decades? Consider that between 2020 and 2024, Buffett oversaw a multi-billion-dollar share repurchase program at Berkshire Hathaway. The company then took a break, but share buybacks are back in style at Berkshire. During the second quarter, and under Greg Abel's leadership (likely in consultation with Buffett), the conglomerate bought back roughly $4.5 billion of its own stock.

What does this indicate? Buying back shares makes the most sense as a corporate capital allocation strategy when a company is trading below its intrinsic value, and part of Buffett's investment philosophy is precisely to invest in companies that are trading at a bargain, below what they are actually worth. The Oracle of Omaha's track record proves that he is at least pretty good at figuring out when a company's share price is too low.

So, Berkshire's massive buybacks in recent years suggest that Buffett and his team have determined that Berkshire Hathaway stock, the one company they are arguably in the best position to evaluate, is undervalued. Of course, Buffett can be wrong, but this should, at least, cause retail investors looking for bargains to take a second look at Berkshire Hathaway.

The perks of owning Berkshire Hathaway stock

There are several reasons Berkshire Hathaway is a great stock to own during a market crash, especially if a recession triggers it. First, the company has a diversified business. Berkshire owns dozens of subsidiaries across many different sectors and industries. Some may not perform well during economic downturns, but others will do slightly better. That doesn't mean Berkshire can go through a recession and emerge essentially unscathed. But the company's business looks resilient.

Second, Berkshire Hathaway's insurance division arguably provides some resilience during recessions. Demand for essential (and sometimes, law-mandated) insurance coverage remains high even during recessions, and the premiums the company collects before the claims are paid generate float that Berkshire Hathaway can invest.

As of the end of the second quarter, Berkshire Hathaway had $177.5 billion in insurance float. Cash, equivalents, and U.S. Treasury Bills for the company's insurance and other businesses were $359.2 billion.

Berkshire Hathaway's liquidity gives it considerable flexibility if equity prices fall sharply. The company doesn't need to wait for a crash to find opportunities -- it returned to net stock buying in the second quarter -- but a broad sell-off could give it even more opportunities to deploy capital at attractive prices. Buffett famously said that it's important to "be greedy when others are fearful and fearful when others are greedy."

Berkshire Hathaway may not be hoping for a downturn, but if one does happen, it will provide the company with the opportunity to be greedy when others are busy panic-selling. And the conglomerate may emerge from the ordeal a stronger company.

A great forever stock

Now, some may argue that without Buffett at the helm, Berkshire Hathaway is no longer an attractive stock. But the company is in good hands. The new CEO, Greg Abel, spent a long time with the company before rising to that role and was handpicked by Buffett as his successor. Several key figures remain, such as Ted Weschler, who has long been an investing lieutenant of Buffett, as well as Ajit Jain, the vice chairman of the company's insurance operations.

More importantly, Buffett's investing philosophy and approach to doing business are part of Berkshire's internal culture and should remain so for a long time. So the stock isn't just a great pick to prepare for a crash or a recession. Berkshire Hathaway is an attractive stock to buy and hold for the long term.

Prosper Junior Bakiny has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.