Warren Buffett wouldn’t touch these FTSE 100 shares. Neither would I

Warren Buffett likes highly profitable companies that are financially strong. So he wouldn’t invest in these FTSE 100 companies, believes Edward Sheldon.

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One of the secrets to Warren Buffett’s success is that the billionaire investor’s very picky when it comes to choosing stocks. He only invests in what he considers to be excellent businesses. Most stocks he simply ignores.

With that in mind, today I’m going to highlight two FTSE 100 stocks that I believe Buffett would have no interest in investing right now. The ‘Oracle of Omaha’ wouldn’t touch these Footsie shares and neither would I!

Warren Buffett wouldn’t touch this FTSE 100 stock

The first FTSE 100 stock I believe Buffett wouldn’t touch is BT Group (LSE: BT.A). That’s becasue he doesn’t like companies that have a lot of debt. He understands a huge debt pile makes a company extremely vulnerable.

BT’s is enormous. In its last full-year results, the company reported total liabilities of £38.3bn. Meanwhile, equity on the balance sheet was £14.8bn. That gives a debt-to-equity ratio of about 2.6. Buffett likes to see a ratio under 0.8.

He also likes to invest in companies that demonstrate good long-term track records in terms of generating shareholder wealth. BT doesn’t have a good track record in this respect. Right now, its share price is well below the level it was at 20 years ago. Meanwhile, the company just suspended its dividend.

All things considered, I’m quite confident Buffett wouldn’t invest in BT shares at present.

No economic moat

Another FTSE 100 stock I believe Warren Buffett would avoid right now is Sainsbury’s (LSE: SBRY). I think he’d steer clear here because he loves highly profitable companies. He pays a lot of attention to return on equity (ROE) – a key measure of profitability.

Many companies in the Berkshire Hathaway portfolio have a high ROE. For example, Apple – Buffett’s largest holding – has averaged a 45% ROE over the last five years. This means it’s a very profitable company.

Sainsbury’s generates a very low ROE. Over the last five years, it’s averaged just 4.2%. This tells us the company doesn’t generate a strong return on the money invested in the business. In other words, it’s not very profitable. Buffett wouldn’t be impressed at all. “The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed,” he’s said.

Buffett also likes a company to have a competitive advantage or ‘economic moat.’ This stops competitors from stealing market share and protects profits. Sainsbury’s doesn’t appear to have one at present. Recently, it’s been losing market share to competitors such as Ocado, Aldi, and Lidl at a rapid rate.

On top of this, Sainsbury’s also has a high amount of debt on its balance sheet.

All in all, I’m fairly certain Buffett would steer clear of this FTSE 100 stock right now. He’d be far more interested in looking for top FTSE 100 businesses that are highly profitable, resilient, and financially strong.

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.

Edward Sheldon owns shares in Apple. The Motley Fool UK owns shares of and has recommended 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.

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