New Investors: 2 Top Stocks Are Better Buys Than the Market in a Recession

New investors can start investing in Berkshire Hathaway and Brookfield Asset Management now, as they’re starting to look attractive.

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There’s always a chance of a recession happening over the horizon. Economists believe there’s an increased chance of one over the next 24 months. However, it doesn’t mean it’ll happen. TD Wealth thinks there could be a soft landing. In any case, the stock market was trading at a higher-than-normal valuation earlier this year. Now, it’s in correction mode.

If the market continues to retreat over worries of a recession, new investors should start investing on dips for long-term returns. You can consider two top stocks that are better buys than the market. They’re better in safety and own quality assets. These top stocks are also diversified. Here’s a decade-long graph illustrating the total returns of the U.S. and Canadian stock markets versus the quality stocks that I’ll introduce next.

BRK.B Total Return Level Chart

BRK.B, BAM, SPY, and XIU Total Return Level data by YCharts

Berkshire Hathaway stock

If you have some U.S. dollars lying around or can convert excess Canadian dollars into U.S. dollars on the strength of the loonie against the greenback, consider pecking at some Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) shares. It’s uncommon to find the wonderful business trading at a decent discount. And at under US$292 per share, it’s undervalued by about 21%.

The wide-moat business has insurance operations that generate low-cost float. It’s able to invest for high returns versus what it’s paying out for insurance claims. Berkshire also owns great businesses that are key components of the economy, including BNSF, a class I railroad operator. It’s also invested in energy, manufacturing, service, and retail businesses. Berkshire’s decentralized business model empowers managers of its subsidiary businesses to run the show and only consult Berkshire for resources as needed.

Many new investors prefer to get a dividend from their stocks. Unfortunately, Berkshire Hathaway doesn’t pay a dividend. So, you might like the next top stock idea, Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM), better for solid growth while earning a dividend.

Brookfield Asset Management stock

Brookfield is another wonderful business. It’s an alternative asset manager that’s diversified internationally and across asset type. It operates in more than 30 countries with about 150,000 operating employees. It has about US$725 billion of assets under management (AUM) across real estate, infrastructure, renewable power, private equity, and credit.

Over half of Brookfield’s AUM are fee-bearing capital. Its fee-related earnings hit a new height of US$1.8 billion in the last 12 months. Furthermore, it also earns performance fees for hitting certain return targets for its funds. This gross accumulated unrealized carried interest reached a new record of almost US$7.4 billion at the end of Q1. The amount will be realized over time when funds are returned to investors.

The growth stock is also a Canadian Dividend Aristocrat. Its 10-year dividend-growth rate is 8.4%. In the period, its annualized total returns were about 16.7% on the TSX.

Brookfield is a very well-run company. Furthermore, it’s a value investor. It has an ongoing capital-recycling program that sells optimized or mature assets to redeploy for better risk-adjusted returns. It will also buy back shares when they’re sufficiently cheap. Brookfield is ready to buy back up to 10% of its float, as it renewed its stock-buyback program last month. At about $60 per share, it yields roughly 1.2% and trades at a discount of about 25-33%.

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.

The Motley Fool recommends Berkshire Hathaway (B shares) and Brookfield Asset Management Inc. CL.A LV. Fool contributor Kay Ng owns shares of Brookfield Asset Management.

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