Like Fundsmith? I think you’ll love these UK shares

Fundsmith portfolio manager Terry Smith has made a lot of money for investors with a simple strategy. Here are two UK shares that have Fundsmith attributes.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Fundsmith portfolio manager Terry Smith has made a lot of money for his investors with a very simple strategy. He’s simply invested in high-quality, resilient businesses that are very profitable and held on to them for the long term.

If you’re a fan of Fundsmith, and the way Smith invests, I think you may be interested in the two UK shares below. Both of these stocks are held in the Smithson Investment Trust – the smaller companies-focused investment trust run by the Fundsmith team that follows a similar strategy to the open-ended global equity fund. Like all Fundsmith stocks, these UK shares have many high-quality attributes.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

FTSE 100 growth stock 

The first is Rightmove (LSE: RMV). The chances are you know the company as it operates the largest property website in the UK.

It’s not hard to see why the Fundsmith team likes Rightmove. Firstly, the company has a massive competitive advantage – its brand. Believe it or not, more people in the UK start their home search with ‘Rightmove’ than ‘property’.

Secondly, RMV is very profitable. Last year, return on capital employed – a key measure of profitability – was 384%. That’s extremely high. It tells us that for every £1 of capital employed by the company, it generated a profit of £3.84. Own a stock generating that kind of return on capital over the long run and the chances are you’ll do pretty well from it.

Rightmove has experienced challenges this year due to the Covid-19 lockdown. But it now appears to have its mojo back. As a result of the recent stamp duty announcements, interest in UK property is soaring and buyers are flocking to rightmove.co.uk. The stock is still more than 10% below its 2020 high however. I’d snap it up today despite its lofty forward-looking P/E ratio of 31 (using next year’s EPS forecast).

A resilient Fundsmith-like stock

Another UK stock that has Fundsmith-like attributes is Domino’s Pizza (LSE: DOM). It’s also held in the Smithson portfolio.

Like Rightmove, Domino’s is a high-quality business. For a start, its brand power provides a competitive advantage. When you think of takeaway pizza, Domino’s is the name that comes to mind.

Secondly, its franchise model is very profitable. Over the last three years, return on capital employed has averaged 32.5%. That’s excellent.

Third, the company is very resilient. This is illustrated by the company’s recent half-year results. For the 26 weeks ending 28 June, UK and Ireland sales were up 5.5%. Underlying basic earnings per share fell just 1.1%. Those results are impressive when you consider the UK economy is facing its worst decline in around 100 years.

Domino’s shares currently trade on a forward-looking P/E ratio of about 21, falling to under 20 when you plug in next year’s earnings forecast. I think that’s a very reasonable valuation for this business. If you’re a fan of the Fundsmith investment style, I think this UK share could be worth a closer look.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon owns Rightmove and Smithson Investment Trust and has a position in Fundsmith. The Motley Fool UK has recommended Domino's Pizza and Rightmove. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Black father holding daughter in a field of cows
Investing Articles

Could my Stocks and Shares ISA generate £30,000 a year?

Over 2m UK citizens make some use of a Stocks and Shares ISA every year. Our writer considers if it’s…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

4 dividend stocks that can help me fight inflation!

I'm looking at dividend stocks to help my portfolio grow and overcome the impact of high inflation. Here are the…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 bargain UK shares trading at less than book value

Book value is a great way to value a stock. These UK shares are trading at a price-to-book ratio of…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

A FTSE AIM stock I’d add to my Stocks & Shares ISA in July

Henry Adefope highlights a FTSE AIM stock he believes could generate significant upside for his portfolio if he buys this…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m following Warren Buffett and buying cheap dividend shares to build my wealth

I think this cheap dividend stock exhibits similar qualities to the companies Warren Buffett has in his investment portfolio.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 cheap FTSE 100 shares I’m buying during the dip!

Andrew Woods explains that low P/E ratios and profitable businesses attract him to these two FTSE 100 shares.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 45% in a year, is now the time to buy Scottish Mortgage shares?

Jon Smith explains why Scottish Mortgage shares appear to him to be good value given their post-pandemic fall.

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

3 reasons why the stock market is falling today

Jon Smith explains several factors that are contributing to the stock market falling today, and his thoughts on them.

Read more »