Warren Buffett is back in the spotlight after his recent shareholder letter. Many interpret it as a warning. He did say that most of his assets are in equities and businesses, the reason he still has a massive cash pile is because he doesn’t see many good opportunities in the current market. The fact that Buffett has been a net seller of stocks for the ninth quarter in a row is very telling. Actions speak louder, and him selling hundreds of billions of equities likely means he sees the broader market being overvalued.
To what degree? One can only speculate. But one thing we can say for certain is that Buffett is not entirely bearish. He has bought several stocks while being a net seller in the past few quarters, and these stocks could go on to deliver solid gains in the long run. Let’s take a look at three defensive stocks he has bought aggressively:
Constellation Brands (NYSE:STZ) seems like a classic Warren Buffett buy. It has well-known brands with staying power and solid long-term demand, and the recent panic selling of the stock is a great time for some opportunistic buying.
Berkshire Hathaway (NYSE:BRK.B) acquired a stake of 5.6 million shares in Constellation Brands worth approximately $1.2 billion in Q4 2024. This makes Buffett the sixth-largest shareholder in the company. It is also Berkshire’s only new position in Q4. Warren Buffett’s stamp of approval is likely why the stock is starting to recover. You should note that this is after Buffett disclosed that he bought the stock in Berkshire’s Q4 report. He is yet to turn a profit here.
It is down nearly 33% from its peak and trades at 13 times forward earnings. That’s quite cheap compared to a well-established defensive business like this one. Investors are usually willing to pay three times the amount for defensive companies when market volatility strikes, so if tech stocks and other cyclical names start correcting, STZ could be a big beneficiary.
The consensus price target of $254.29 implies 41.5% upside. It also comes with a 2.24% dividend yield.
Domino’s Pizza (NASDAQ:DPZ) isn’t that beaten down, but it remains down nearly 19% from its late 2021 peak. It hasn’t managed to make a recovery in over three years but Warren Buffett seems confident in this business.
He bought 1.28 million shares in Q3 2024 at an average price of $434.56 and bought 1.1 million more shares in Q4 2024 at an average price of $437.07. Shares did come down momentarily following Dominos’ Q4 earnings miss, but it has since recovered. The company crashed hard during the Great Recession, but it has performed well in 2020, so it is not the most proven “defensive” business, though DPZ not delivering gains in the past four years has allowed its earnings to catch up to its frothy valuation.
Buffett probably likes the margins here. Its operating margin of 18.5% is better than 94.3% of its peers. The ROIC of 56.2% is better than almost 99% of companies in the restaurant industry. The cash flow here has allowed it to reduce its outstanding shares from 56.3 million in 2012 to 34.7 million in 2023. On top of that, it comes with a 1.52% dividend yield.
The consensus price target of $501.41 implies 9.3% upside.
Occidental Petroleum (NYSE:OXY) has some defensive characteristics and the stock is quite beaten down at current prices. It has declined 18.2% in the past year and is down over 28% from its 52-week high.
The stock has been a Warren Buffett favorite for several years, with Berkshire Hathaway steadily increasing its stake to become Occidental's largest shareholder, currently owning 28.2% of the company. Buffett's interest in Occidental began after reviewing a transcript from the company's earnings conference call, and he has continued to buy shares even during market downturns. In February 2025, Berkshire purchased an additional 763,017 shares for $35.7 million.
Unfortunately, many of his buys have not been profitable here, and his total estimated loss is at 8.1% since he started buying in Q3 2019. That said, there’s a good chance that the Trump administration’s fossil fuel policies could drive it back up.
The consensus price target of $61.55 implies 24.31% upside potential.
