In 80 years of investing, billionaire Warren Buffett has built one of the world’s largest fortunes (nearly $115bn). How did he do it? By buying big stakes in great companies and holding onto these shareholdings for decades. As a veteran value investor, Buffett advised in 1991, “Just buy something for less than it’s worth.” He has also said, “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” Here are three Buffett-style stocks I don’t own but would buy today, based on the Oracle of Omaha’s enlightened teachings.
Warren Buffett stock #1: Unilever
Warren Buffett is a big fan of consumer-goods giant Unilever (LSE: ULVR). Indeed, he teamed up with other investors in January 2017 in a failed bid to buy the Anglo-Dutch business when Unilever stock was trading around £32. Today, it stands at 3,932p — roughly £7 higher five years on and valuing the group at £100.8bn. However, pre-pandemic, Unilever shares had soared much higher. At its all-time high, ULVR hit a peak of 5,333p on 4 September 2019. While it’s true that Unilever’s sales growth has slowed in recent years, it was still 1.9% in 2020.
Today, this stock trades on 22.8 times earnings, for an earnings yield of 4.4%. The dividend yield of 3.8% a year is less than the FTSE 100‘s 4%, but still competitive. I’d gladly buy and own shares in this great business for the next decade, despite the headwinds facing this heavyweight firm.
Value share #2: Legal & General
To be honest, I write about Legal & General (LSE: LGEN) a lot — perhaps more often than I should. But I genuinely believe that this provider of life assurance, savings, and investments is a high-quality, Warren Buffett-style business. Today, L&G — a household name since 1836 — manages over £1trn of assets for more than 10m customers. It has an outstanding brand, a great management team, and a long record of success. Even during the depths of 2020’s coronavirus crisis, L&G kept paying out cash dividends, despite rivals cancelling their payments.
At the current share price of 305.5p, L&G stock trades on a modest rating of 8.1 times earnings and an earnings yield of 12.4%. The stock offers a market-beating dividend yield of 5.8% a year. However, if asset prices dive in 2022, this could harm L&G’s earnings and share price. Even so, I’d happily buy into this £18.2bn business today.
Buffett stock #3: London Stock Exchange Group
In February 2018, Warren Buffett said, “The best chance to deploy capital is when things are going down.” This brings me to London Stock Exchange Group (LSE: LSEG). This operator of stock markets and financial-data provider had a tough 2021. Indeed, its share price is down 21.6% over one year, making it one of the FTSE 100’s five worst-performing stocks since early 2021. Yet LSEG has something Buffett loves: a fantastic ‘competitive moat’ around its complex, interlinked businesses. As a result, this stock has leapt by 146% over five years. At the current share price of 7,216p, LSEG is valued at £39.4bn. But this stock briefly exceeded £100 on 16 February 2021, so I believe it has room to rebound. Thanks to capital expenditures and write downs, LSEG trades on an elevated price-to-earnings ratio of 80.4 and a lowly earnings yield of 1.2%. Also, the dividend yield is just 1.1% a year. Nevertheless, I view this as a growth stock poised to recapture former glories!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.
