Warren Buffett is arguably the best-known individual in the investment world. His shrewd stock picking via his company Berkshire Hathaway over several decades make him a worthy person to be so prominent. In order to try and replicate his success this side of the pond, here are some stocks that I think could get me rolling.
Finding value shares
Among Buffett’s big focus areas are value stocks. These are companies that he believes are currently undervalued when he considers what the stock could be worth in a decade or more. For example, in the latest earnings report, Berkshire Hathaway declared a holding worth £2.4bn in Citigroup. The American bank has been in a rut for years. The share price has trailed other competitors in the US such as JP Morgan.
As a comparison, I’ve bought Barclays (LSE:BARC) shares. I feel this is a similar case to what Buffett is thinking with Citigroup. The Barclays price-to-earnings (P/E) ratio is just 6.61, well below the fair value benchmark of 10 that I use. Further, the bank is actively focusing on cost-cutting and becoming more efficient.
In a February update, the CEO commented that the bank would become “simpler, better and more balanced”. I believe that over the course of the coming couple of years, the share price should rebound as the £2bn worth of cost cuts by 2026 filter down to higher profits.
Of course, I am a little concerned that if interest rates do get cut this year, they’ll negatively impact earnings for the bank. Yet (like Buffett), if I look at the long term here, I don’t see this being a material problem years down the line and I already own the stock.
Don’t forget about growth
Another area where Buffett has made a name from recently is tech growth stocks. After all, his largest holding by some distance over the past year has been Apple. This shows me that even with the strong performance recently, tech stocks could still provide me with good profits going forward.
To try and replicate this, I’m considering buying Wise (LSE:WISE). This UK FinTech firm has seen the share price jump 57% over the past year. Even with this, a trading update put out yesterday (16 April) showed that active customers grew by 29% year on year. Some 60% of business users are engaging with the firm for multiple features.
Given the growth prospects of cross-selling different products and features, I think the stock could continue to outperform.
I do need to watch out for the lofty valuation. In contrast to Barclays, the P/E ratio for Wise is 79! This does make my eyes water, but I know that future earnings are expected to jump significantly. If this is the case, the ratio should eventually come down to a more reasonable level.
By trying to mimic Buffett with his investment thinking, I think I can hopefully look to make shrewd stock picks and boost my profits.
The post Using the Warren Buffett approach, here are 2 British stocks I like appeared first on The Motley Fool UK.
Should you buy Barclays now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
More reading
2 tempting cheap shares to consider buying for long-term returns and growth
Something wild just happened to the S&P 500 and FTSE 100
A cheap FTSE 100 growth share I wouldn’t touch with a bargepole!
UK shares look undervalued and I’m making the most of it
After rising 11% in March, where will the Barclays share price go in April and beyond?
Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jon Smith has shares in Barclays and Citigroup. The Motley Fool UK has recommended Barclays Plc and Wise Plc and Apple. 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.