The S&P 500 Index recently saw its seven-day win streak come to an end in the final hour of trading on Tuesday. Investors continued to rotate out of growth stocks, as the NASDAQ 100 led the downward charge once again.
For a while it seemed that stocks could only go up. But as you’re probably aware, it’s times like these, when investors are used to seeing green on the daily, when one’s most likely to let their guard down, leaving themselves open to feeling the full force of a market crash or correction.
Be like Warren Buffett: Never let your guard down!
While it’s comforting to know that the Fed has our backs as investors, it’d be unwise to exhaust your liquidity reserves as several U.S. indices struggle to break through their pre-pandemic heights. The insidious coronavirus is still out there, and every time we take the pressure off containing efforts, an outbreak will spike.
Although we’ve had a nice bout of optimism lately, one must not rule out the possibility of a bear-case scenario with this pandemic, however unlikely it may seem at any given time.
Warren Buffett acknowledges the full range of potential outcomes. He’s still sitting on a mountain of cash because there’s a chance the markets could implode again, and once it does, he’ll be ready to put more money to work.
So, if you want to be like the Oracle of Omaha, you should follow in his footsteps by keeping some dry powder on the sidelines. That way, you’ll relish, not fear, the next time stocks start falling with no end in sight, as they did in February and March.
What should Warren Buffett buy the next time the markets are in turmoil?
That’s the million-dollar question, and while we can only speculate at this point, it’s worth looking into the man’s portfolio for businesses that Buffett has already taken a liking to. As far as Canadian stocks are concerned, Suncor Energy (TSX:SU)(NYSE:SU) stands out as TSX stocks that Warren Buffett should buy if the markets were to retreat again.
Suncor Energy is Buffett’s preferred way to play the Canadian oil patch. The company has been under a considerable amount of pressure amid the coronavirus crisis, and its dividend didn’t make it through the industry hailstorm in one piece.
While a 55% dividend reduction is viewed as unforgivable by many income investors, value investors have a lot to gain by going against the grain at these depths.
Deep value in the oil patch
If the COVID-19 pandemic worsens, battered energy stocks like Suncor could lead the next downward charge. The company, which now has a Fort-Knox-like balance sheet, is ready to roll with the punches that this pandemic will throw its way.
And unlike its peer Canadian Natural Resources, Suncor is focused on shoring up cash and doing everything in its power to survive a bear-case scenario rather than looking to scoop up distressed bargains in the energy scene while keeping investors happy with its large dividend commitment like Canadian Natural Resources.
As a result, Suncor’s peer Canadian Natural likely has more fans these days. But if you’re like Warren Buffett and want better preparation for a bear-case scenario, Suncor is a better bet while shares trade at a 5% discount to book value. While Suncor’s 3.7% yield is less bountiful, the value to be had in the stock is unmistakable.
If Warren Buffett liked Suncor last year, he’ll likely love it should Suncor stock fall into the teens on the next market sell-off.
If you're looking for opportunities in this uncertain market, I'd encourage you to consider the following
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned.