Investing in companies where you understand the business model, and can easily attribute value, is an approach that has served Warren Buffett well for over 50 years

Whilst Buffett invests predominately in US companies, the same approach can be applied to some leading UK stocks. Here are three FTSE 100 companies that I will be adding to my own portfolio.

Amongst the rapidly evolving UK business and domestic delivery sector, Royal Mail (LSE: RMG) is positioned as the only universal delivery operator, providing mail delivery, as well as parcel delivery and logistics services through its Parcelforce and GLS Systems divisions.

Unlike its new streamlined competitors, Royal Mail is distracted to an extent by legacy issues. Its attempts to focus on the growth of its GLS Logistics division are well founded, but at the same time it also needs to reduce its cost base, with over 700 managers currently set to leave the company as part of an estimated £70m restructure.

Revenues last year fell by 2.4% and performance in recent months has been impacted by issues including staff resourcing (due to the latest Covid variant). It is, however, worth noting that these revenue numbers were still ahead of pre-pandemic levels.

Despite these headwinds, management appear to be making progress and at a price-to-earnings (P/E) ratio of 8.6x, the share price may have been overly castigated. Although not without downside risk, this is a business where I believe Buffett would also see value at 441p.

Bunzl (LSE: BNZL) is a quiet giant, whose myriad of consumer products are used worldwide on a daily basis. It is a global leader in the supply of packaging materials, although the bulk of its profits are generated in North America and European markets.

There is, however, a lot more to Bunzl than just packaging, and its diversified revenue base is evidenced by the fact that a whopping 64% of its total revenue is now generated from other products.

I like the fact that Bunzl is at the forefront in the supply of recyclable and compostable packaging. This means that it has limited exposure to the tough new regulations on consumer items, such as single-use plastics, whilst the company is working hard with customers on transitioning their other products to sustainable materials.

Threats include global supply chain issues, rising raw material prices and spiralling fuel costs.  I have confidence, however, in Bunzl to ride out the storm, and at 2,744p it appears good value to me.

Another company investing heavily in the future, BT (LSE: BT.A) is attempting to shrug off a period of lacklustre performance over the past five years.

The shining light for the future appears to be its Openreach fibre business, which is gaining clients at pace, on the back of substantial capital investment (£1.2 billion in the last reported quarter alone).

Across its UK consumer businesses, levels of customer retention and the quality of its EE mobile network are further positives, although the disappointing performance of its Global business has been a drag on results and could continue to weigh on the share price.

Billionaire investor Patrick Drahi, with a 12.1% stake, appears to have a positive view on BT and this is mirrored by analyst forecasts.

At a price of 199p and a P/E ratio of 10.5x, BT seems good value to me.

Fergus Mackintosh has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl. 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.

US inflation came in worse than expected yesterday. The Consumer Prices Index (CPI) rose 7.5% over a 12-month period including January – the most in four decades! It’s not great in the UK, either. CPI is expected to rise to 5.8% in the second quarter compared to the same period in 2021. This isn’t great for me as a consumer. But, it’s also not great for me as an investor. I want to generate returns above the rate of inflation, after all. So, I’ve been looking at which FTSE stocks I’d buy to give me the best chance of beating inflation. Here’s what I’ve found.

Real estate investment trusts

The first place I’ve been looking at is the real estate investment trust (REIT) sector. REITs are companies that manage a portfolio of property investments. If I bought shares of one, I’d be gaining exposure to a diversified portfolio of real estate.

A REIT can offer me both capital gains from share price rises, and potentially high levels of income from the rent it earns. In fact, it has to pay out at least 90% of its taxable earnings as a dividend to shareholders. One other factor I like about them is that I’d benefit from the general rise in property prices over time. This can act as added protection from rising inflation.

One particular REIT that I’d buy is Tritax Big Box, a FTSE 250 member with a current market value of £4.4bn. It manages a portfolio of large-scale warehousing for the logistics sector. There’s been a huge boost in demand for prime-location warehousing from the growth in online shopping. Tritax’s tenants are also subject to inflation-linked rent reviews, so this brings an added benefit to my portfolio.

There are still risks to consider when buying REITs though. For one, occupancy rates have to remain high if the company is to keep generating rental income. Also, they often have significant levels of debt that they issue to acquire further properties. It’s something I should keep in mind before buying any shares.

FTSE dividend payers

I’d also buy high-dividend-yield stocks to try and generate a real return in my portfolio. There are plenty of options in the FTSE indices for me to choose from. One potential risk with dividend stocks is that they’re never guaranteed income streams. A company has to remain profitable if it’s to pay a dividend. That’s why it’s always important for me to thoroughly analyse the companies before I buy any shares.

To start, I would add to my positions in British American Tobacco and Legal & General. Both of these companies are in the FTSE 100, and have forward dividend yields above the expected UK inflation rate for this year.

For added diversification, I’d consider positions in Persimmon and Barratt Developments. These large homebuilders are well placed to address the UK’s housing shortage. They also both offer dividend yields above expected inflation.

These companies could struggle in the years ahead, for instance if there was a recession. Profits could fall, and my dividends could be cut. Nevertheless, I think the high dividend yields above inflation make them attractive buys for me today.

Dan Appleby owns shares of British American Tobacco and Legal & General. The Motley Fool UK has recommended British American Tobacco and Tritax Big Box REIT. 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.

Risks to the British economy are rising. It’s why I’m not considering buying Lloyds Banking Group (LSE: LLOY), despite its cheap share price.

Happily, there are many top FTSE 100 stocks I can choose from so I don’t have to take a risk with UK-focussed shares like Lloyds.

Fresh comments from the National Institute of Economic and Social Research (NIESR) illustrate the massive threat to Britain’s banks. In its latest report — ominously titled ‘Powering Down, Not Levelling Up’ — the body warned that a mix of supply constraints, high inflation, high interest rates, and tax rises will all put pressure on both the economy and households.

The NIESR predicts these pressures could persist for a number of years too. As a consequence, it predicts GDP will grow 4.8% in 2022 before falling sharply to 1.3% and 0.8% in 2023 and 2024 respectively.

Why I’m ignoring Lloyds’ cheap share price!

Against this backdrop, I think our high street banks may struggle to grow earnings. And especially as the challenger banks pose an increasing threat to the banks’ established order. As a consequence, I fear the Lloyds’ share price could start to reverse sharply again.

As I say, the FTSE 100 firm looks very cheap right now. It trades on a forward price-to-earnings (P/E) ratio of 8.4 times. At 51.p, the share price also carries a meaty 5.1% dividend yield. This figure beats the 3.2% Footsie average by quite a margin.

However, the lead index is packed with top-quality cheap shares for me to buy right now. Lloyds’ considerable exposure to the robust UK housing market might help it make some handsome profits. But I think the dangers elsewhere far outweigh this specific plus point. So why do I need to take a risk with Lloyds?

2 FTSE 100 stocks I’d rather buy

Here are two brilliant blue-chips I’d much rather invest in today.

Broadcaster ITV faces massive competition from the streaming giants like Netflix and Amazon’s Prime.  But I still think the FTSE 100 firm is a thumping buy right now. I think the vast amounts the business is spending on its highly-successful ITV Hub streaming service will deliver big profits. ITV trades on a P/E ratio of 7.5 times. It carries a huge 5.4% dividend yield too.

Packaging manufacturers like DS Smith face a considerable threat to profits as paper costs soar. But as a long-term investor, I think could prove to be a brilliant buy as e-commerce balloons across the globe. DS Smith provides all sorts of general and bespoke packing solutions to major retailers and product manufacturers in Europe, North America, Asia and Africa. The company trades on a modest P/E ratio of 12 times and sports a 4% dividend yield.

With a little research I can find many other better FTSE 100 shares to buy than Lloyds too.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild owns DS Smith. The Motley Fool UK has recommended Amazon, DS Smith, ITV, and Lloyds Banking Group. 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.

It’s not that long since Scottish Mortgage Investment Trust (LSE: SMT) shares hit all-time highs. But a tech sell-off has hit the share price hard over the last three months and the price has fallen by around 30%. That’s painful for recent buyers of the shares no doubt. For longer-term holders though, it may be just a blip. The share price is, after all, up by a sector-leading 200% over the last five years. Its early investment in companies such as Tesla has — literally — paid dividends. Yet the shares could continue on their current cold streak.

Why could Scottish Mortgage keep falling?

As I recently pointed out, there are reasons to be wary of a further stock market correction or crash. The trust’s backing of a number of ‘jam tomorrow’ type stocks is an issue. They’re heavy on innovation but also are often unprofitable, or face increasing competition in hot, high-growth sectors. And they’ve felt the brunt of the recent market sell-off. 

But inflation is probably the primary concern when it comes to why shares in Scottish Mortgage Investment Trust could keep falling. It doesn’t seem like something that’s going to go away soon – as much as central banks and economists might like it to.

There’s also an element of what goes up must come down. The share price rise during the pandemic was astronomical. The trust had a purple patch and so it’s only to be expected that a cold streak will occur – the key question is: how long might it last?

Also, as the trust holds Chinese tech companies such as Tencent (its sixth-largest holding), any renewed clampdown by the Beijing authorities on the sector will likely hit tech shares and the Scottish Mortgage Investment Trust share price.

Reasons for optimism

Yet it’s not all doom and gloom. As a long-term investor, I’m keen to think about where the share price might be in five years’ time rather than where it’ll be in five weeks’ time. Despite its recent drop – and the imminent departure of one of its key managers – Scottish Mortgage could still be a great investment. Most of the management team’s members are staying on to run the investments and they have a great track record of backing innovative listed and private companies from across the globe.

Another upside is the shares are now on a small discount to the net asset value (NAV). All being equal, this is a good thing. The shares often trade for more than the trust is actually worth – known as a premium.

So I like the Scottish Mortgage Investment Trust. I’ll ignore the shares for now just because I fear further stock market volatility, which could particularly affect tech stocks. To answer my earlier question I think there’s a real possibility the cold streak may continue for some time.

Overall though, if the shares fall and the discount increases, I’ll be tempted to buy the shares to add diversification and give me access to some of the world’s most innovative and exciting companies.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended Tesla. 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.

I’m looking for the best growth stocks to buy right now. Here are two top UK shares that have grabbed my attention.

Battling the cyber threat

As sad as it is, Western nations spend colossal amounts every year on systems that protect their citizens. It’s a constant that stretches all the way back to the dawn of man. The battlefields are slowly changing however, and this provides opportunities for some defence companies to thrive. I think Ultra Electronics (LSE: ULE) is one of these.

This UK share is a specialist in the field of cyber security. Safeguarding ourselves in the digital age is becoming imperative as electronic attacks from other states, from terrorists and from lone hackers rise sharply. Just this week the British Foreign Office announced it was a subject to “a serious cyber security incident”.

Profits have been growing steadily at Ultra Electronics despite the pandemic. And City analysts think the bottom line will swell by an extra 4% in 2022 too. The threat that its systems could fail is a constant one. And it could have disastrous consequences that could smack future orders. But as of today, I think this leader in its field could be a very shrewd buy for me.

Making magic

Bloomsbury Group (LSE: BMY) is another solid earnings generator I’m considering investing in. This is despite the publishing industry facing unprecedented cost challenges as paper shortages emerge. The head of Hachette UK recently said that supply problems are the “most extreme” in at least a quarter of a century.

This has the potential to hit Bloomsbury’s profits hard. Costs could soar and the company could struggle to fill stores with its books. Still, from a long-term perspective, this is a UK share I think remains highly attractive. Reading as a hobby has really taken off since Covid-19 lockdowns. I expect Bloomsbury’s products to remain in high demand, even if the number of active readers begins to decline.

Bloomsbury is perhaps best known as the publisher of the Harry Potter series of books. The franchise’s success is astonishing given that the first book was released all the way back in 1997.

JK Rowling’s timeless series remains insanely popular with children and adults alike, helping earnings at Bloomsbury to grow and grow. A new generation of readers pick up the books for the first time each year, while revamped editions keep sales ticking over from existing fans too.

Bloomsbury though is about more than just wizards. The company’s digital academic publishing division just hit the ambitious sales and profits targets it set back in 2016. And Bloomsbury continues to grow this part of the business to meet strong student demand. It just paid £17.3m to acquire US-based academic publisher ABC-CLIO.

City analysts think Bloomsbury’s yearly earnings will rise 6% and 9% in the financial years to February 2022 and 2023 respectively. I think this is one of the best growth stocks to buy for the long haul.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

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The FTSE 100 has enjoyed a positive week so far, and is currently trading at 7,653 points. This is the highest level since Q1 2020, back to a time before the pandemic caused the stock market crash in March. There are short-term drivers that have helped the index break above 7,600 points that could bode well for further gains this year. So could we see the all-time highs of 7,877 points give way soon?

Reasons for the bump up

Over the past week, there have been several factors that have helped to propel the FTSE 100 to new highs. Firstly, commodity prices have continued to perform well. The Brent crude oil benchmark price has climbed to over $91 per barrel, levels not seen since 2014. With some analysts calling for $100 per bbl before the end of the year, it’s lighting a fire under the likes of BP, Shell, and Glencore stocks.

Aside from oil, travel stocks have also done well. This comes after the announcement from the Prime Minister that a complete end to Covid-19 restrictions could come a month earlier than expected. The easing of travel testing for half-term is also positive news in this regard. As a result, the International Consolidated Airlines Group share price is up 11% over the past week. The move higher in other travel and retail stocks has helped to raise the index as a whole.

Both these points are short-term drivers. However, both can act to push the FTSE 100 higher still. For example, travel stocks are jumping with anticipation of stronger consumer demand. If trading updates later this summer confirm or exceed this then there could be further upside for this sector.

Could the FTSE 100 break the record?

Before I get ahead of myself, there are a few levels that need to be broken before all-time highs are made. To begin with, the FTSE 100 struggled to break 7,700 points back in January 2020. It also broke but couldn’t hold above this level in July 2019.

Back in 2018 (when the all-time high was made) the FTSE 100 pushed to new highs above 7,800 but then faded away, and a month later actually broke below 7,500 points briefly.

From this historical performance I can see that there’s more work to be done. Firstly, 7,700 as a psychological barrier needs to be broken. From there, it still needs almost 200 points before the champagne can be opened. 

From my perspective, I value fundamental analysis over studying historical charts. Charts definitely help to pick specific levels to target, but it’s the fundamental reasons that will help levels to be reached and broken. Therefore, from understanding the above reasons, I do think that the FTSE 100 has legs to climb higher. 

There are some risks to my view. Heightened uncertainty politically and the potential of a snap election could hurt the index. War with Russia and Ukraine also wouldn’t be a positive. Finally, another Covid-19 variant would be concerning.

Jon Smith and The Motley Fool UK have 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.

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