The stock market is exhibiting elevated valuation risks, with the CAPE ratio recently reaching its second-highest reading on record. This metric suggests equities are quite overvalued, a concern compounded by continued high inflation, the highest 10-year Treasury rate in nearly a quarter century, and a new Federal Reserve rate hike cycle. Against this backdrop of growing downside risks, six companies have demonstrated a historical capacity to hold up during market turbulence: Berkshire Hathaway, Coca-Cola, Duke Energy, Johnson & Johnson, Realty Income, and WM.
During the 2022 bear market, these six stocks all outperformed the S&P 500, with several ending the year in positive territory. Their resilience stems from specific structural advantages that stabilize cash flows and reduce volatility relative to the broader market.
Berkshire Hathaway maintains a diversified portfolio of operating companies, including GEICO, BNSF, and MidAmerican Energy. Its insurance, financial services, transportation, energy, manufacturing, service, and retailing operations generate stable earnings that the company retains. These retained funds are used to acquire additional operating companies and invest in public equities such as Coca-Cola. As of the end of June, Berkshire held a cash balance of $365.5 billion, which accounted for nearly a third of its market capitalization. This substantial cash position provides ballast during downturns and enables the company to repurchase shares, acquire businesses, or buy public equities opportunistically.
Coca-Cola owns beverage brands including Coke, Dasani, Powerade, and Gold Peak. Demand for these products is durable and steadily rising, generating resilient cash flows. This stability has allowed Coca-Cola to increase its dividend for 64 consecutive years, earning it Dividend King status. The company also maintains a strong balance sheet that supports weathering economic storms and executing acquisitions.
Duke Energy operates as one of the largest regulated electric and natural gas utilities in the United States. Durable energy demand and government-regulated pricing enable resilient earnings generation. The utility has paid dividends to shareholders for over 100 years and has increased its dividend for more than 20 consecutive years. Duke is currently executing a $103 billion capital investment plan through 2030, which is projected to support annual earnings-per-share growth of 5% to 7%. This combination of durable cash flows and stable growth significantly reduces stock price volatility.
Johnson & Johnson possesses one of the strongest financial profiles in the world, holding a pristine AAA credit rating shared by only one other company. This financial flexibility supports heavy investment in research and development and strategic acquisitions to bolster its drug pipeline and medical technology portfolio. Durable demand for its innovative medicines has enabled the company to increase its dividend for 64 straight years.
Realty Income is one of the world's largest real estate investment trusts (REITs), owning a diversified portfolio of retail, industrial, gaming, and data center properties. These assets are secured by long-term net leases with major companies in industries resilient to economic downturns. Under net lease agreements, tenants cover all property operating expenses, including maintenance, taxes, and insurance, providing stable cash flow for Realty Income. Since its public listing in 1994, the REIT has outperformed the S&P 500 during 11 of its 13 corrections. The company has also raised its dividend for over 30 consecutive years.
WM serves as North America's leading environmental solutions provider. Its revenue is recurring because customers require consistent services for garbage collection, medical waste handling, and secure document destruction. This stable cash flow supports a growing dividend paid for 23 consecutive years, share repurchases, and growth investments including acquisitions. WM's stock has historically exhibited volatility about half that of the S&P 500 while generating above-average total returns.