In 35 years as an investor, I have had one big hero. He is American mega-billionaire Warren Buffett, nicknamed the ‘Oracle of Omaha’. Buffett’s personal fortune exceeds $114bn, despite having donated $45bn to good causes. In 80 years of investing (since the age of 11), Buffett is widely regarded as the world’s best value investor. Here are three quality shares that I don’t own, but believe Warren Buffett would be happy to buy today.
Warren Buffett share #1: Lloyds Banking Group
In his 2008 letter to Berkshire Hathaway shareholders, Warren Buffett wrote, “Price is what you pay; value is what you get”. For me, shares in Lloyds Banking Group (LSE: LLOY) appear cheap today. As I write, Lloyds shares trade at 52.5p, valuing the bank at £37.3bn. That’s a modest price tag for a group with 30m customers, 65,000 staff, and a host of market-leading brands. Also, Lloyds is the UK’s top mortgage lender and a leading provider of credit to businesses and households.
Despite this, Lloyds shares don’t look expensive to me. They trade on eight times earnings and offer an earnings yield of 12.5%. During 2020’s Covid-19 crisis, Lloyds cancelled its dividend, before restoring it in July 2021. Though Lloyds’ dividend yield is just 2.4% a year, analysts expect it to rise. I suspect that such undemanding fundamentals would appeal to Warren Buffett’s value instincts. However, Lloyds could suffer steep loan losses were Covid-19 to make another comeback.
Great business #2: Diageo
Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. In other words, it’s worth paying premium prices for quality stocks. Take this brilliant British business: drinks giant Diageo (LSE: DGE). Diageo sells more than 200 drinks brands in over 190 countries, including gin, whisky, vodka, and rum. Some of its top brands date back four centuries.
As I write, Diageo shares trade at 3,806.18p, valuing the business at £88.3bn. That’s big enough for Warren Buffet to buy a decent stake in. Today, Diageo stock trades on 29.3 times earnings, with an earnings yield of 3.4%. The dividend yield is under 2% a year, making Diageo fairly expensive in FTSE 100 terms. But it has a wide ‘competitive moat’ around its business, which Buffett loves. Then again, if coronavirus surges and spoils the party, then Diageo’s sales could plunge — as happened during earlier lockdowns.
Quality stock #3: Unilever
Warren Buffett also said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”. Consumer-goods Goliath Unilever (LSE: ULVR) is one great business whose shares slipped in 2021-22. Over the past year, Unilever shares have tumbled from a high of 4,388p on 20 July 2021 to a low of 3,450p on 19 January. As I write, they trade at 3,865.50p, valuing the group at £99.4bn — a market super-heavyweight. As with Diageo, I like Unilever for its veritable warehouse of household brands. One in three people worldwide use Unilever products every day. Wow.
I know Warren Buffett also admires Unilever, because he tried to buy it in January 2017. Today, Unilever trades on 22.2 times earnings, for an earnings yield of 4.5%. The dividend yield of 3.8% a year is broadly in line with the wider FTSE 100. However, Unilever’s sales growth has slowed lately, dropping to 1.9% in 2020. Even so, I’d happily buy and hold this quality company for the long term!
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Click here to claim your free copy of this special investing report now!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Lloyds Banking Group, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
