The Motley Fool

Warren Buffett: Watch Out for a Stock Market Crash!

Image source: Getty Images.

The COVID-19 pandemic rattled investors in 2020, and they scrambled for guidance from the top minds in the industry. Naturally, Warren Buffett was one of the top names that kept popping up throughout the year. The Oracle of Omaha was bit early on after a bold bet on airliners. A broad recovery in North American stocks reinforced his eternal optimism. However, investors cannot ignore red flags that suggest a stock market crash may be imminent.

That optimism has not manifested itself in Buffett’s favourite market indicator. Today, I want to discuss why investors may want to be fearful of a market crash as we consider this red flag.

Warren Buffett’s favourite indicator is flashing red!

In December 2020, I’d discussed Warren Buffett’s favourite market indicator. This indicator takes the combined market capitalizations of publicly traded stocks worldwide and divides it by the given country’s gross domestic product (GDP). The indicator hit a 13-year high during trading this week. That suggests that stocks are broadly overheated. Investors should exercise extreme caution in this environment.

Where should investors turn in the face of these warning signs? One strategy is to look at what stocks Warren Buffett is avoiding and adding right now.

What stocks is the Oracle of Omaha selling?

Warren Buffett is an ardent Bitcoin skeptic. The investing legend once called Bitcoin “rat poison.” He had formerly predicted a “bad ending” for cryptocurrencies and declared that he would buy a “five-year put” on all of them if he could. As it stands today, that prediction is looking shaky. Indeed, Bitcoin surpassed Berkshire Hathaway’s market share over the past month. Still, don’t bet on Buffett changing his mind on cryptos anytime soon.

The Oracle of Omaha has also been critical of gold bugs over the years. Berkshire’s $500 million Barrick Gold purchase puzzled investors in the summer. However, the company went on to dump over 40% of its stake in the top gold producer in the third quarter. Bitcoin and gold soared in 2020 in the face of a destabilizing pandemic and a weakening U.S. dollar. It does not look like Buffett is confident in gold continuing its record run into 2021.

Warren Buffett: What stocks is he buying?

Warren Buffett is not a Bitcoin believer, and he’s distancing himself from gold. However, Berkshire has shown a fondness for healthcare equities in its most recent quarter. That should come as no surprise with the vaccine rollout holding huge promise for companies like Merck, Pfizer, and others.

Canadians should also look to get in on the promising healthcare space. Andlauer Healthcare (TSX:AND) is one of my favourite healthcare equities on the TSX. This Vaughan-based company provides a platform of third-party logistics (3PL) and specialized transportation solutions for the domestic healthcare sector. Shares of Andlauer have climbed 80% year over year as of close on January 14.

In Q3 2020, this healthcare stock saw revenue increased 7% from the prior year to $75.8 million. Moreover, EBITDA rose 13% to $20.2 million. Canadians should follow Warren Buffett’s lead and add Andlauer and other healthcare stocks in January.

Here are more stocks to snatch up in January...

Motley Fool Canada Makes 5G Buy Alert

5G is one of the greatest arrivals in technology since the birth of the internet. We could see plenty of new wealth-building opportunities in 2021 that would potentially dwarf any that came before them.

5G has the potential to radically change our lives and society as we know it, but if you’re an investor, the implications are even greater — and potentially much more lucrative.

To learn more about it and its revolutionary potential to change the industry — and potentially your bank account — click on the link below to get the full scoop.

Learn More Today!

Fool contributor Ambrose O'Callaghan  has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Andlauer Healthcare Group Inc. and Berkshire Hathaway (B shares) and recommends the following options: short March 2021 $225 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.