Investing in companies where you understand the business model, and can easily attribute value, is an approach that has served Warren Buffett well for over 50 years
Whilst Buffett invests predominately in US companies, the same approach can be applied to some leading UK stocks. Here are three FTSE 100 companies that I will be adding to my own portfolio.
Amongst the rapidly evolving UK business and domestic delivery sector, Royal Mail (LSE: RMG) is positioned as the only universal delivery operator, providing mail delivery, as well as parcel delivery and logistics services through its Parcelforce and GLS Systems divisions.
Unlike its new streamlined competitors, Royal Mail is distracted to an extent by legacy issues. Its attempts to focus on the growth of its GLS Logistics division are well founded, but at the same time it also needs to reduce its cost base, with over 700 managers currently set to leave the company as part of an estimated £70m restructure.
Revenues last year fell by 2.4% and performance in recent months has been impacted by issues including staff resourcing (due to the latest Covid variant). It is, however, worth noting that these revenue numbers were still ahead of pre-pandemic levels.
Despite these headwinds, management appear to be making progress and at a price-to-earnings (P/E) ratio of 8.6x, the share price may have been overly castigated. Although not without downside risk, this is a business where I believe Buffett would also see value at 441p.
Bunzl (LSE: BNZL) is a quiet giant, whose myriad of consumer products are used worldwide on a daily basis. It is a global leader in the supply of packaging materials, although the bulk of its profits are generated in North America and European markets.
There is, however, a lot more to Bunzl than just packaging, and its diversified revenue base is evidenced by the fact that a whopping 64% of its total revenue is now generated from other products.
I like the fact that Bunzl is at the forefront in the supply of recyclable and compostable packaging. This means that it has limited exposure to the tough new regulations on consumer items, such as single-use plastics, whilst the company is working hard with customers on transitioning their other products to sustainable materials.
Threats include global supply chain issues, rising raw material prices and spiralling fuel costs. I have confidence, however, in Bunzl to ride out the storm, and at 2,744p it appears good value to me.
Another company investing heavily in the future, BT (LSE: BT.A) is attempting to shrug off a period of lacklustre performance over the past five years.
The shining light for the future appears to be its Openreach fibre business, which is gaining clients at pace, on the back of substantial capital investment (£1.2 billion in the last reported quarter alone).
Across its UK consumer businesses, levels of customer retention and the quality of its EE mobile network are further positives, although the disappointing performance of its Global business has been a drag on results and could continue to weigh on the share price.
Billionaire investor Patrick Drahi, with a 12.1% stake, appears to have a positive view on BT and this is mirrored by analyst forecasts.
At a price of 199p and a P/E ratio of 10.5x, BT seems good value to me.
