5 Shares Warren Buffett Might Buy Today

16 July 2012


A look at Buffett's buys to see what UK shares he may consider.

Warren Buffett is the world's best investor.

In an investment career spanning decades, Mr Buffett has frequently explained his investment strategy.

Using what I know about Buffett, I have tried to identify the UK-listed companies he might consider buying. Given the funds available to Mr Buffett, he is unlikely to invest outside the FTSE 100 (UKX). I have added some extra shares I expect Buffett would like if he could buy smaller companies.

1) Tesco

Buffett already owns shares in Tesco (LSE: TSCO). Perhaps he will be buying more. Tesco has a very strong position in its industry, bringing with it substantial buying power. Although recent trading has worried the markets, Buffett is not being put off.

If you want to know more about Buffett's reasons for buying Tesco then get our special free report on the company "The One UK Share Warren Buffett Loves". This report is free and will be delivered to your inbox immediately. It contains must-read information for anyone that wants to understand Warren Buffett, the wonder-investor.

2) Reckitt Benckiser

One theme common in analysis of Warren Buffett's investment style is that of the 'defensive moat' -- a competitive advantage that is hard to replicate.

Companies that own respected brands can enjoy greater economies of scale (because they are selling more) and better terms from retailers (because some brands are must-stock products). The result is large profits and high reliability of future earnings.

Reckitt Benckiser (LSE: RB) owns a portfolio of leading consumer brands. These include Dettol, Nurofen and Durex. The company's brand assets have helped deliver massive investment returns for shareholders. In 2002, Reckitt Benckiser paid shareholders a dividend of 25.5p per share. For 2012, this dividend reached 125p per share. In this time, the shares have increased more than threefold.

A smaller alternative might be Portmeirion (LSE: PMP). This £50m tableware firm owns brands that date back to the 18th century. Portmeirion has not cut its dividend since it started paying out in 1988.

3) AG Barr

Buffett is a known investor in Coca-Cola (NYSE:KO.US). He likes the company's product, its strong brand, market position and pricing power.

The closest share to Coca-Cola in the UK is probably AG Barr (LSE: BAG).

AG Barr is the Glasgow-headquartered manufacturer of Irn-Bru, where it vies with Coca-Cola for top spot among the nation's soft drinkers. The company also owns the fast-growing Rubicon and KA brands.

In the last five years, AG Barr has demonstrated compound annual earnings growth rate of 11.9% per year. The dividend has similarly increased, on average, 9.8% a year in that time.

With a market capitalisation of just £490m, AG Barr is likely too small for Buffett to invest in. If you are willing to buy shares in even smaller companies, you might take a look at Nichols (LSE: NICL). This is the company behind Vimto. Nichols has a market capitalisation of £260m. The company has increased its shareholder dividend year-on-year since 2004. In the last five years, eps at Nichols has increased, on average, by 17.1% a year.

4) Smith & Nephew

Smith & Nephew (LSE: SN) is a specialist manufacturer with a market capitalisation of £5.8bn. The company is a world leader in the manufacturer of artificial joints for orthopaedic healthcare. In a world with an ageing population, Smith & Nephew looks well placed to cash in.

In the last five years, Smith & Nephew has increased earnings per share at an average rate of 13.3% and shareholder dividends by 10.0% a year on average.

Smith & Nephew is a beneficiary of the strength of its brand. Healthcare buyers are likely very reluctant to start using a rival without a comprehensive history of successful deployment. This helps ensure strong profit margins and a high degree of earnings reliability. All this considered, I am slightly surprised to see the shares trading on a forward price-to-earnings (P/E) ratio of just 13.1 times consensus earnings estimates.

A smaller alternative might be Diploma (LSE: DIPL). Diploma supplies connectors and valves to the energy and aerospace industries. Similar to Smith & Nephew, its products must be reliable as they are so expensive to replace. The result is Diploma can demand a high price for its products as the risk involved in switching supplier are high.

5) SAB Miller

SAB Miller (LSE: SAB) is a global brewer with strong brands, strong cash flows and operates in an industry that continues to enjoy growth. I'm guessing Warren Buffett might also like this stock.

I wrote about SABMiller recently in my article 12 Shares That Thrashed The Market.

If you are interested in a smaller alternative, Greene King (LSE: GNK) might be the share for you. The brewer and pub chain has a market capitalisation of £1.3bn. Greene King trades on just 10.1 times consensus forecasts for the coming year and is expected to yield 4.6%.

Further investment opportunities:

• What Every New Investor Needs To Know
• The Share that Made Fools Millions
• 10 Steps To Making A Million In The Market

http://www.fool.co.uk/news/investing/2012/07/16/5-shares-warren-buffett-might-buy-today.aspx?source=ufwflwlnk0000001

3 Reasons To Buy Into The Market Today

29 June 2012

This market is a buy. Here's why.

The stock market, it's fair to say, is in an uncertain mood. And, as in the early days of 2009, just before the market's nadir, daily items of news are having a disproportionate effect on sentiment.

The economy, Greece, banking downgrades, American purchasing and housing surveys -- you name it, and stock prices are reacting, oscillating wildly on euphoria and gloom.

At such times, it's tempting to sit it out, and wait for calmer times before putting more money into market. But that, I think, would be a mistake.

Here's why.

Pessimism abounds

Let's start with why the market is reacting to newsflow, and not shrugging it off. Simply put, investors today are far more pessimistic than they were earlier in the year, when the FTSE 100 (UKX) was within a few points of 6,000.

And pessimistic markets, in short, are buying opportunities. As Benjamin Graham put it: "Buy when most people -- including experts -- are pessimistic, and sell when they are actively optimistic." Or, to cite that other well-known super-investor, Warren Buffett: "Be fearful when others are greedy, and be greedy when others are fearful."

Can the market get more pessimistic still? Undoubtedly. Can people get even more fearful? Of course. But with the market down 10-15%, you can buy today the same shares that you were buying just weeks ago -- but significantly more cheaply.

And as Warren Buffett -- again! -- so memorably put it in a thoughtful article in Fortune magazine a few years back:

"When hamburgers go down in price, we sing the Hallelujah Chorus in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying ‑‑ except stocks. When stocks go down and you can get more for your money, people don't like them any more."

And unquestionably, the stock market's hamburgers have just gone down in price. AstraZeneca (LSE: AZN), Aviva (LSE: AV), BT (LSE: BT-A), BAE Systems (LSE: BA), Barclays (LSE: BARC) andLloyds Banking Group (LSE: LLOY) -- undeniably, Britain's blue chips have gone on sale.

That said, only some of those particular blue chips are rated as a 'buy' by Neil Woodford, the subject of a recent special free Motley Fool report: "8 Shares Held By Britain's Super Investor". And others in that short list above, it's fair to say, he wouldn't touch at all.

Which are which? Why not download the report, and find out? As I say, it's free.

Asset class perspective

That said, it's possible to view today's market in a very different light. Namely, this way: if you don't like shares at today's prices, what do you like?

Cash? Real returns are either negative or zero -- and the next move in interest rates is likely to be downwards. Property? You're braver than I am. Gilts? Every bubble has to burst one day -- and we're surely in a gilt bubble. And so on.

On the other hand, decent blue chips are on yields of 5% or so, delivering dividend growth of 5-10%, and offer capital growth into the bargain.

And, what's more, at very reasonable prices. The FTSE 100's price-to-earnings (P/E) ratio yesterday was 9.88, compared to 10 years ago when it was 19.88 -- and that, in short, is one helluva difference in valuation.

Watch-list wonders

Frankly, there's not much point in having a watch list if all you do is, well, watch it.

Or, to put it another way: "When shares on my watch list scream 'bargain', I buy them. What do youdo, Sir?," as master investor and economist John Maynard Keynes so memorably didn't quite say.

And with those sentiments in mind, there's one share in particular that I've been loading up on in recent times, having almost doubled my holding this year. What's more, I'll be buying still more of it in mid-July, when I've banked my dividends from Sainsbury (LSE: SBRY), Marks & Spencer (LSE: MKS),GlaxoSmithKline (LSE: GSK) and BP (LSE: BP), and found some more spare cash.

Its name? You can find that out in another free special report from the Motley Fool -- "The One UK Share Warren Buffett Loves". But from the way that Buffett has seemingly been topping up himself in recent times, it's clear that the share is on his watch list, too. The report is free, so why not download a copy now?

Your view?

Of course, not everyone will agree with me. Some of you, as you've explained before, in comments appended to articles like this, are rather keener on property than I am.

But with the FTSE 100 on a P/E below 10, real interest rates largely negative and a wobbly housing market, that's the world as I see it. Comments?


http://www.fool.co.uk/news/investing/2012/06/29/3-reasons-to-buy-into-the-market-today.aspx

The Four Big Threats to Your Wealth in 2011 (MoneyWeek Magazine)

UK Housing threat
UK Stock market threat
Drop the Euro before it collapses
The "bond bubble" is about to burst


The fact is we're in unchartered territory ... and it's a very dangerous and unstable situation.

Does a 40% rise in the FTSE and a 9% rebound in property prices over the last 18 months seem right to you?

The way we see it, these aren't healthy markets at all ... they're not even recovering markets ...
...these are grossly inflated markets, pumped up by desperate government intervention.

Will the UK economyh sink into deflation if the Government follows through its pledge to rein in our national debt? ...

... Or, with the Bank of England's furious attempts to keep the ball rolling, is it inflation we have to fear?


So ... what should you do?
Survival Action #1 Buy defensives and "bear market protectors"

Defensive stocks: These kinds of companies don't need economic growth to make money, because people have to spend on their products out of necessity. In short, they're specifically suited to keep your portfolio ticking over in times of upheaval ... and GROW when the market truly recovers.


Survival Action #2 Get the right dividend players into your portfolio now

But since the bust up of 2008, investors have rediscovered the appeal of dividend cheques. This is for three reasons ...

1. Dividends outperform bond yields. According to Bloomberg, by the third quarter of 2010 more U.S. stocks were paying dividends that exceed bond yields than any time in the last 15 years.
2. Dividends can't be fudged - they have to be paid with real money.
3. Dividend-payers are excellent stocks to own in times of unprecedented uncertainty.
Dividends contribute to share price stability. If the share price of a dividend-paying firm falls, it is likely to fall less sharply than a pure growth stock. That's because as the price falls, the yield tends to pick up, encouraging investors to buy back in.


Survival Action #3 Ride gold all the way to $2,230 .. or even more!

... you're talking an eye-popping gold spike to $23,450 per ounce. And during times of confusion, gold often performs better than most other assets. Consider this ... adjusted for inflation, the 1980 gold peak of $850 gives you a price of $2,230 still on the horizon today.

Shares: the winners since April

Shares: the winners since April
Over the last six months the FTSE 100 has risen 31pc, but which companies have fared the best?

Published: 4:16PM BST 12 Oct 2009


Nick Raynor, investment adviser at The Share Centre, reviews the index's performance, highlighting this year's biggest winners and losers and identifies a company with future potential.

BIGGEST WINNERS:
Vedanta up 194pc
Vedanta Resources is a metals and mining group with annual sales of $1.9bn. The company primarily produces aluminum, copper, zinc and lead. Since its low of 743p back in March, Vedanta's share price has increased nearly three-fold to 2191p. The company's performance has been boosted by the weak dollar, coupled with the resurgence in minerals and commodity prices, which has lifted the whole sector.


Barclays

Barclays up 138pc
Barclays' share price has rocketed over the last six months currently trading at 376p, not far off the price levels it was trading before the collapse of Lehman Brothers. The bank chose financial independence over government support and as a stand-alone bank has outperformed its rivals. As a result Barclays' shares were not diluted and therefore rose faster as confidence returned to the market. The old saying, "sell in May and stay away until St Ledger's Day" would certainly have proved costly to Barclays investors. Collectively, from 1 March up to mid-August, banking shares went up over 300%.

Rentokil up 120pc
Rentokil is known as the royal rat catcher, but has many other strings to its bow i.e. the laundry group, Initial. Following a disastrous 2008, Rentokil decided to reorganise its business operations. The company has since delivered better than expected cost savings and its share price has increased almost more than doubled from 53p to an impressive 116.8p. More recently, Rentokil made a surprise return to the FTSE 100.

BIGGEST LOSERS
United Utilities down 9.7pc
United Utilities share price has slowly been falling as investors move from steady performing shares to snap up down beaten shares for value. As a result, United Utilities share price has dropped from 495p back in April to 451p. There are also concerns of OFWAT's forthcoming review, which is likely to have a negative impact on the water sector as a whole. United Utilities may well be forced to cut its dividend, but the company has strongly suggested that no cut will be needed. On the plus side, United Utilities' shares are currently yielding over 7pc.

Reed Elsevier down 7.6pc
Reed Elsevier, provider of journals and textbooks, has seen a large fall in profits over the last six months. Its share price has dropped from 498.5p back in April to 463p, which is believed to be the result of spending cut backs in education publications and increased debt pressure. More recently, the publisher surprised the market by placing 110m new shares in the market. As a result, of this announcement its share price took a 15% hit. Funds raised by the placing will be used to pay off debts acquired from Reed Elsevier's takeover of ChoicePoint.

Thomas Cook down 7.2pc
The travel sector has not had the best year as consumers continue to tighten their belts. Thomas Cook's August trading statement confirmed it was suffering and that swine flu had impacted the tour operator much worse than its rival TUI. Tough conditions in the global travel market have forced Thomas Cook to abandon its operating profit target of £480m for next year, a goal established in the happier times of 2007. Since April Thomas Cook's share price has dropped from 250p to 233p.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/6308268/Shares-the-winners-since-April.html

FTSE 100 back above 5,200 as gold hits new record high

The FTSE 100 rallied back above 5,200 as investors took heart at strong US corporate results and encouraging economic news from China and a weak dollar pushed gold to a fresh record high.

Published: 3:42PM BST 14 Oct 2009

FTSE 100
London's index of leading shares rose 1.7pc to 5241 as investors ploughed back into the market, lifted by positive results from US bank JP Morgan and chipmaker Intel.

The dollar slumped to a fresh 14-month low against other major currencies as investors' appetite for risk increased, sending gold to another record high of $1,072 an ounce.

Oil prices rose above $75 a barrel in New York for the first time in a year.

Miners surged in London after China said its slump in exports eased in September, offering a further sign that global trade is improving. Kazakhmys, up 8.4pc to £12.78, was the leading riser in the blue chip index.

Rio Tinto (up 4pc) fuelled this view after it raised full-year production targets on the back of continued strong demand from Chinese steelmakers.

Barclays , Royal of Scotland and Lloyds Banking Group got a boost from a sevenfold rise in third-quarter profits to $3.6bn at JP Morgan.

The bank's bumper profits and a better-than-expected 5pc fall in Intel's third-quarter profits to $1.9bn pushed Wall Street back toward 10,000. America's blue chip index was up nearly 1pc at 9954 in early trading.

http://www.telegraph.co.uk/finance/markets/6327173/FTSE-100-back-above-5200-as-gold-hits-new-record-high.html

FTSE 100 hits 5,000 level for first time since October

FTSE 100 hits 5,000 level for first time since October

The FTSE 100 has touched the 5,000 level for the first time since the height of the banking crisis last October as investors seize on better news from the economy.

Published: 3:17PM BST 09 Sep 2009

The index of blue-chip companies has rallied more than 40pc since slumping to its low for the year in early March. The move to 5,000, a level last touched on October 3, comes as a new survey from Nationwide showed that British consumers are feeling more confident than at any point in the past 12 months.

Home Retail Group, the owner of Argos, was up 1pc, and Tesco, Britain's biggest supermarket, also added 1pc. Beyond retailing, BG Group was one of the biggest risers after telling shareholders that it had discovered a deepwater field off the coast of Brazil that contains between 1 billion and 2 billion barrels of oil.

"Difficult as it is to buy up here, the bulls will be taking confidence from the lack (just yet) of a reaction pull back," said Simon Denham, managing director of Capital Spreads. "The big hope is that all this spending does not just build a short term bubble."

Stock markets around the world have recovered from their lows as investors anticipate a recovery in the global economy. However, given the scale of the rally some analysts question whether the momentum can be sustained.

The six-month rally has driven the price-to-earnings ratio on the FTSE 100 to 70.9, the most expensive level in seven years, according to Bloomberg.

http://www.telegraph.co.uk/finance/markets/6162632/FTSE-100-hits-5000-level-for-first-time-since-October.html

FTSE loses billions of pounds within hours

FTSE loses billions of pounds within hours
Billions of pounds have been wiped off the value of Britain's leading companies after losses at HSBC and AIG drove share prices to a six-year low.

By Graham Ruddick and Myra Butterworth
Last Updated: 5:37PM GMT 02 Mar 2009

HSBC Hldgs
The FTSE 100 index of top UK shares dropped after HSBC confirmed a £12.5 billion rights issue.

It fell by 5.3 per cent and below the 3,700 mark for the first time since April 2003, losing investors £47.7 billion.

The sharp decline took the FTSE 100 below the lows experienced last October as UK banks teetered on the edge of collapse and were bailed out by the Government.

It came as analysts expressed concerns about the state of the UK economy, saying the financial crisis could spill over into other industries.

Investors were spooked by HSBC's rights issue after the UK's biggest bank asked for extra cash from shareholders to boost its balance sheet.

The request was made despite HSBC being one of the British banks least affected by the credit crisis.

HSBC's share issue is the biggest ever in Britain, surpassing the £12 billion request by Royal Bank of Scotland last year before it was forced into state support.

HSBC said the rights issue should help its 'ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events'.

The move sent shares in HSBC down almost 19 per cent and also pulled Standard Chartered, which like HSBC conducts a significant amount of business in Asia, down by a similar amount.

Other UK banks also saw their share price tumble, including Royal Bank of Scotland (which closed down 2.6 per cent), Lloyds Banking Group (down 15 per cent) and Barclays (down 6 per cent).

At the same time, one of the world's largest insurers AIG - which was first saved from collapse in September with a package that grew to $150 billion last year - has had to ask for help again after failing to sell enough assets to repay the US.

Simon Denham, managing director of spread-betting company Capital Spreads, said: "The slowly falling indices are dragging ever more of the total economy into the mire and there is a very real possibility of the problem accelerating into an absolute disaster as opposed to a problem mainly constrained to the financial sector at the moment."

The FTSE 100 has not closed below 3,700 since the outbreak of war in Iraq at the end of March 2003. It was at 3,625.83 at the close of play.

David Buik of BGC Partners pointed out that the FTSE 100 is now lower than when Tony Blair won the 1997 general election. "What a waste of a decade that was," he said.

http://www.telegraph.co.uk/finance/newsbysector/epic/hsba/4928648/FTSE-losses-billions-of-pounds-within-hours.html

FTSE 100 on course for worst ever year

FTSE 100 on course for worst ever year
The FTSE 100 is almost certain to complete its worst-ever annual performance today.

By Graham Ruddick Last Updated: 11:09AM GMT 31 Dec 2008

In 12 months of volatile trading, the UK's leading index of shares has fallen 32pc – opening the year on 6456.90 and declining to 4392.68 by New Year's Eve – and recorded five of its most dire trading days. The market closes at 12:30pm today.
The overall annual drop puts 2008 ahead of 2002's dotcom crash of 24.48pc and the 16.15pc fall in 2001 after the 9/11 terrorist attacks in New York. Other notable 12-month declines include 11.52pc and 10.32pc in 1990 and 1994 respectively as the UK economy struggled through its last recessionn.
Confidence has deserted stock markets this year as the global banking crisis hammered shares of banks -with Royal Bank of Scotland and HBOS both recording falls of about 90pc - and fears about the depth of the global downturn hitting the previously buoyant mining shares.
David Buik, an analyst at BGC Partners, said that the size of the drop in certain sectors had been exacerbated by the fear that swept investors this year as the crisis unfolded.
"There is nothing more toxic than fear and uncertainty to galvanise equity operators to dump their books unceremoniously," he said. "That's exactly what happened in extreme degrees of volatility that had never before been experienced in the living memory of mature markets."
As the financial crisis escalated following the collapse of US investment bank Lehman Brothers in September, the FTSE recorded five of its worst ever trading days. The sharpest percentage fall of 2008 came on Friday, October 10, when it lost 8.85pc as rattled G7 leaders met in Washington in an effort to bring calm to markets. That week, during which Gordon Brown unveiled the Government's £500bn bail-out of the country's banks, saw the market slump 21.05pc, the biggest weekly fall of 2008.
However, despite the year being a miserable year one for equity markets, the FTSE's largest daily and weekly losses remain from the week of Black Monday in 1987. The market fell 10.84pc on Monday, October 19 and 12.22pc the following day, driving it to a weekly loss of 28.23pc. Overall though, the FTSE actually ended 1987 up 2.01pc.
Ironically, the financial crisis of late 2008 produced the largest four daily gains ever for the FTSE 100. The index, which began in 1984, rose a record 9.84pc on November 24, pre-Budget report day.
The FTSE has ended 2008 relatively strongly, gaining 4pc this week, and Mike Lenhoff, the chief strategist at Brewin Dolphin, predicts next year could see a recovery to the 5,000 mark because of falling inflation and interventionist policies from governments.
"Monetary and fiscal policies are expansionary, in some cases aggressively so," he added. "Not only have we witnessed the biggest financial upheaval of our time, we are also witnessing the biggest policy response of our time from central banks and governments the world over.
"Also, falling inflation worldwide will boost real household incomes and this should provide something of a boost to the growth of consumer spending – worldwide. On the corporate side, commodity deflation should help profit margins – worldwide. Commodity price deflation could end up being a powerful stimulus for global demand growth."

http://www.telegraph.co.uk/finance/markets/4043815/FTSE-100-on-course-for-worst-ever-year.html