I’d buy these 2 UK stocks today using Warren Buffett principles

Warren Buffett has set out his investment principles often. Christopher Ruane applies them to pick two shares he’d consider for his portfolio.

| 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.

Warren Buffett has a legendary record as an investor. While he has bought many companies outright, he is also active in the stock market.

Based on his investment principles, here are two UK stocks I’d consider buying today.

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!

Warren Buffett on brand pricing power

Buffett has long extolled the financial value of brands.

A company with a strong brand can use it to generate additional profits without adding costs. That is because a brand creates pricing power. Manufacturers can raise prices on products, but customers will still buy them because of their brand loyalty. There are limits, of course, but pricing power can help profitability.

That helps explain Buffett’s love for Coca-Cola shares. It is also why I would consider buying into soft drinks maker AG Barr (LSE: BAG).

A UK pick

Barr is the manufacturer behind the iconic orange Irn-Bru soft drink. Popular in Scotland and the north of England, this product has a loyal fan base. That gives the company pricing power.

But a challenging sales environment during lockdown has taken its toll on the share price. It is up 11% over the past year, but remains far below its 2019 highs. Uncertain demand amid the threat of further lockdowns remains a risk for the company. Revenue last year fell 11% and statutory profit before tax was down 30.5%.

Longer term, the company has been expanding its range to reflect shifting consumer trends. I also see a risk that a decline in the popularity of sugary drinks overall could hurt revenues over time.

I see the current share price as a buying opportunity. The company’s commercial director bought more shares in the past couple of months, which I took as a good sign.

Consumer goods giant

Another company whose brand portfolio delivers the sort of pricing Warren Buffett looks for is Unilever (LSE: ULVR). Indeed, the investor likes the Surf to Marmite producer so much he previously tried to buy it outright.

A wide product portfolio spanning each continent is a classic Buffett play. The investor is a long-term shareholder in Procter & Gamble, which is Unilever’s rival and shares many of its characteristics.

Unilever is highly cash generative, another trait Buffett looks for in an investment. If a company can generate free cash flow, it can fund dividend payouts.

Cash flow can also be used to fund share buybacks. This month the company begins a buyback programme up to €3bn. That could help shareholders, as buying back and cancelling shares reduces the number in circulation. That means that earnings per share increase even if total profit is flat.

Buyback logic

One concern I have, though, is why the company is spending so much on its own shares instead of reinvesting it in its own business. It could suggest that the company sees limited room for growth in key markets. That is a risk for Unilever. Brands such as Lifebuoy, which saw a pandemic sales surge, risk falling revenues if demand falls.

Another explanation is that the shares currently offer good value. Up less than 2% over the past year, they seem to have been sidelined in the broader market recovery. I would consider buying more shares in this stock today, applying Warren Buffett principles.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

christopherruane owns shares of Unilever. The Motley Fool UK has recommended AG Barr and Unilever. 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

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

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

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »

Portrait of construction engineers working on building site together
Investing Articles

Down 30%, are CRH shares a screaming buy?

The CRH share price has slumped this year. Roland Head asks if this overlooked FTSE 100 share could be a…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

UK shares: the good, the bad, and the ugly

Not every stock is a bargain just because it’s cheaper than it was a few months ago.

Read more »