Warren Buffett is considered to be the greatest investor of all time. Over the past seven decades, he has built a vast fortune using a relatively straightforward strategy for selecting stocks and shares.
Buffet, or the Oracle of Omaha as he is sometimes known, only buys equities that he believes look cheap compared to their potential. He is also looking for businesses with a solid competitive advantage, which will help them outperform the competition.
I have been using the same approach to find cheap FTSE 250 shares to add to my portfolio.
FTSE 250 value stock
The first company on my list is retailer Marks and Spencer (LSE: MKS). After a couple of years of struggling for direction, it now looks like this business is back on track.
The firm has been investing heavily in its food division and rejigging its clothing offering. The reopening of the UK economy after the pandemic has been a significant tailwind for the company.
It now expects to report a 380% increase in net profit for its current financial year. City analysts forecast earnings of 21.5p for the year, putting the stock on a forward price-to-earnings (P/E) multiple of just 10.
As the fashion and retail industry is highly unpredictable, there is no guarantee this growth is sustainable. This is probably the biggest challenge the group faces right now. Rising prices could also become a headwind for company growth.
Still, I would buy the shares for my FTSE 250 portfolio as I believe they exhibit the qualities Warren Buffett looks for in an investment. Not only is the stock cheap, but the company also has a strong brand. Consumers across the country know the company manufactures its food and clothing products to the highest quality for its price.
This competitive advantage should help the group continue capitalising on the economic recovery during the next few years.
Warren Buffett qualities
International estate agent Savills (LSE: SVS) is the second FTSE 250 stock exhibiting Warren Buffett qualities that I would buy for my portfolio today.
At the time of writing, shares in this organisation are selling at a forward P/E multiple of 14.9. This is not particularly inexpensive, but I also need to factor in the firm’s brand value. As an internationally recognised estate agent, I think the brand value alone is worth a premium.
Savills’ primary market is the high-end property market. This is still subject to the cyclical nature of the global property market. This cyclicality is the most considerable risk to the company’s growth in the long run, and it is something I will be keeping an eye on as we advance.
Despite this headwind, I think the company has all of the qualities of a Warren Buffett-style investment. Not only is the FTSE 250 stock cheap compared to its potential, but it also has a globally recognisable brand. With a dividend yield of 2.5% on offer, I think the enterprise could make a great addition to my portfolio.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
