Warren Buffett is widely recognised as one of the best investors in the world. Fortunately, he has also shared his wisdom with the world through many famous quotes. I often use this advice when deciding which FTSE 100 stocks to invest in. These are two that I feel Warren Buffett would approve of.
Long-term investment
One famous Buffett quote is: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” Using this logic, it is vital that potential investments have strong long-term prospects and are in healthy industries. An example I see in the FTSE 100 is the insurance company Legal & General (LSE: LGEN).
I particularly like LGEN as a long-term investment due its record of profit and dividend growth. Indeed, in the recent half-year trading update, profits had reached over £1bn. This is 7% higher than in 2019, demonstrating the company’s excellent recovery from the pandemic. Shareholder returns have also grown over the years, and this year’s dividend is expected to total around 18.5p per share. This is 5% higher than last year, and around 300% higher than a decade ago. This gives the insurance company a dividend yield of 7%, significantly higher than other FTSE 100 stocks.
I reckon that this strong performance can continue for the foreseeable future, which is why I’d happily own LGEN shares for 10 years. its growth should be fuelled by the ageing population, due to significant exposure to the annuities sector. Of course, there is still the risk of the competition taking market share, but as a current market leader, LGEN seems to me like a stock Warren Buffett would like.
A recovery FTSE 100 stock
HSBC (LSE: HSBA) had an extremely difficult 2020, and its share price reached lows not seen since the financial crisis in 2009. But there have been recent signs of recovery, and I feel that the share price now has upside potential. In fact, as Buffett said: “If a business does well, the stock eventually follows.” I feel this applies to HSBC.
In the recent half-year trading update, the bank managed to post profits before tax of $10.8bn. This was around 150% higher than last year, supported by a cancellation of $300m of provisions made for bad debts. Clearly, this was a very strong performance, yet I don’t believe that the HSBC share price has risen sufficiently since. The shares are currently priced at 412p, around 30% lower than their pre-pandemic price. But as the business seems to be performing well at the moment, I feel the share price may follow suit soon. This is why I’m tempted to add this stock to my portfolio.
I also like this FTSE 100 stock as a long-term investment, especially considering its recent “pivot to Asia”. This involves $6bn of new investment in the area, and the relocation of some executives from London to Hong Kong. Due to growth seen in Asia, I believe that this will have a positive effect on future profits.
There are still risks with this strategy though, especially due to the geopolitical tensions in Asia right now. This may limit the success of the transition.
