Watsco, Inc. (WSO): Among Benjamin Graham Stocks for Defensive Investors

We recently published a list of 10 Benjamin Graham Stocks for Defensive Investors. In this article, we are going to take a look at where Watsco, Inc. (NYSE:WSO) stands against other Benjamin Graham stocks for defensive investors.

Markets in early 2025 are a bit like a moody spring—75 degrees one day, stormy the next. After a strong run in 2023 and 2024, the S&P 500 dropped over 5% year-to-date as investors digested a mix of policy uncertainties, uncertainty around interest rate cuts, and pockets of corporate underperformance. Many stocks are being re-priced as investors grow more selective, and earnings outlooks weaken. At the same time, the bond market is quietly signaling a shift. Treasury yields are still elevated, but there’s a growing sense that the Fed may be near the end of its hiking cycle. That has made Treasury and investment-grade bonds more attractive, especially compared to volatile equities. The market is in transition. Investors are moving from chasing momentum to seeking quality. Caution, realism, and discipline are back in style, and so are value stocks.

Preparing for a potential recession is less about panic and more about applying timeless principles—many of which were championed by Benjamin Graham, the father of value investing. Graham taught that the key to long-term investment success lies in discipline, patience, and a deep understanding of value. In uncertain economic times, those lessons are more relevant than ever. Graham said in his book The Intelligent Investor:

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Rather than trying to time the market, investors should focus on building a portfolio grounded in quality and resilience. Graham favored companies with strong fundamentals, conservative balance sheets, and consistent earnings power—attributes that tend to shine when the economy slows. Dividend-paying stocks with a history of reliability also fit neatly into Graham’s framework, offering both income and a margin of safety. Graham said in The Intelligent Investor:

“The essence of investment management is the management of risks, not the management of returns.”

Diversification, another core tenet of Graham’s philosophy, helps investors avoid overexposure to any one sector or asset class. Holding a variety of investments—equities, bonds, and even cash—can smooth returns and provide flexibility. Graham often emphasized the importance of keeping a cash reserve, not just for protection, but as a source of opportunity when market prices become irrationally low.

Graham said, “The investor’s chief problem—and even his worst enemy—is likely to be himself.” Emotional discipline, especially during turbulent markets, is essential. By remaining rational, reassessing risk exposure, and maintaining a long-term mindset, investors can navigate recessionary periods with the confidence that volatility, like all market conditions, is temporary—and often presents some of the best chances to buy quality assets at a discount.

Our Methodology

We used the Classic Benjamin Graham Stock Screener by Graham Value to compile a list of the 10 Benjamin Graham stocks for defensive investors. We considered the top 20 stocks on our screen and picked the ones with the highest number of hedge fund investors, as of Q4 2024. The stocks are sorted in ascending order of hedge fund sentiment.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Watsco, Inc. (NSYE:WSO)

Number of Hedge Fund Holders: 33

Watsco, Inc. (NYSE:WSO) is North America’s largest HVAC/R (air conditioning, heating, and refrigeration) distributor, operating 690 locations across the US, Canada, Mexico, and Puerto Rico. Serving over 130,000 contractors, it grew revenues from $64.1 million in 1989 to $7.6 billion in 2024 through acquisitions and product expansion. The HVAC/R industry is large and fragmented, driven by a growing replacement market and demand for energy-efficient systems. Watsco, Inc. (NYSE:WSO) also distributes parts for commercial refrigeration and partners with leading manufacturers in both sectors.

Watsco, Inc. (NYSE:WSO) delivered solid Q1 2025 results, highlighted by a 10% increase in HVAC replacement sales and improved gross margins due to favorable product mix and pricing.  Watsco increased its annual dividend by 11% to $12 per share, suggesting the company’s confidence in navigating a potential recession. While international sales remain a minor portion, Watsco continues to navigate tariff uncertainty with agility, leveraging scale and partnerships for long-term growth. The company is transitioning to A2L refrigerant systems, which will impact over half of its sales, supported by $1 billion in inventory conversion and customer training. The company noted Q1 softness was due in part to the A2L refrigerant transition and weak commercial and international sales. However, 454B adoption is accelerating, now over 60% of new sales. Inventory shortages of A2L refrigerant are limited to container issues, not product availability.

Overall, WSO ranks 8th on our list of Benjamin Graham stocks for defensive investors. While we acknowledge the growth potential of WSO, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than WSO but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.