The recent stock market crash caught a lot of investors by surprise. However, following the decline, many stocks continue to trade at depressed levels. I think investors should follow Warren Buffett’s advice to make the most of these bargains, which could produce substantial total returns for investors in the years ahead.
Stock market crash bargains
Warren Buffett has made his fortune by investing in high-quality businesses. He likes companies that have strong and durable competitive advantages, such as Coca-Cola.
There are a handful of companies in the UK market that exhibit similar qualities. One business that certainly looks as if it might conform to some of Buffett’s principles is Coca-Cola bottler Coca Cola HBC AG.
The group exhibits many of the same qualities as Buffett’s favourite soft drinks company, and it has an excellent track record of returning additional cash to investors with dividends and share repurchases. Year-to-date, the stock has fallen around 20%, which suggests it could offer a wide margin of safety at current levels.
Another stock market crash bargain the famous investor could be interested in is BT. Shares in the telecoms giant have been cut in half this year due to concerns about the business’s outlook. However, following this decline, the stock is trading at one of its lowest valuations in recent history.
BT’s competitive advantage is its size. The company is the largest telecommunications group in the UK, and it is unlikely to lose this position. These are just the sort of hallmarks Warren Buffett looks for before making an investment. BT’s size, brand recognition, and the firm’s valuation are all reasons why Buffett might be interested in the stock.
Warren Buffett’s financial stocks
Over the past few years, Buffett has also started to take an interest in banks. His favourite financial stock right now is Bank of America. The investor likes this company because it’s highly profitable, has a strong brand and returns billions of dollars in cash to shareholders every year.
I think Lloyds Bank exhibits similar qualities. Before the coronavirus pandemic, the lender was one of the most attractive dividend stocks in the FTSE 100. It also has one of the most robust balance sheets of any large European financial institution and most enormous profit margins. In other words, I reckon Bank of America and Lloyds are very similar businesses.
As such, I think it’s likely Warren Buffett would be interested in buying part of the UK lender. After the stock market crash, shares in the bank are changing hands at a price-to-book (P/B) value of 0.4. That valuation suggests the stock offers a wide margin of safety at current levels.
The bottom line
All in all, I think following Warren Buffett’s approach to investing could be a sensible way to find bargains after the recent stock market crash. Indeed, all of the companies listed above look cheap compared to their historical valuations and prospects.
Buying a basket of these stocks may help you build a £1m financial nest egg.
