Billionaire investor Warren Buffett once said it is good to “be greedy when others are fearful”. And with large amounts of volatility seen in the stock market in recent years, I think now’s a great time to put that into action.
Buffett, or the ‘Oracle of Omaha’ as he is known, has built a fortune from an initial small sum in his decades of investing. And with the success he’s seen with Berkshire Hathaway, it’s time I tried to replicate some of that success for my own investments.
Here’s how I’m doing it.
Ready to act
In his ‘be greedy’ comment, Buffett meant for us to capitalise on opportunities other investors are passing on. The pandemic and the macroeconomic environment, characterised by high inflation and record interest rates, have seen plenty of shares take a hit as investors pull their cash from the market. However, I think now’s the time to be on the alert.
I’ve used the last few years as a chance to build a portfolio filled with high-quality companies that I see generating some handsome returns in the years and decades to come. What’s better, I’ve got them for a beaten-down price.
What I’m buying
So with that in mind, what opportunities have I pounced on?
Well, one is Barclays (LSE: BARC). It’s been a rough 12 months for the stock, falling over 13% during that time. Year to date, it’s down by over 20%. Yet despite its poor performance, I see this as a chance to buy.
After all, Barclays shares now trade on a price-to-earnings ratio of under four. This sits considerably below the ‘value’ benchmark of 10. It’s also around a third of the FTSE 100 average. What’s more, its price-to-book ratio, which measures a stock’s price relative to the value of its assets, is a staggering 0.3.
On top of that, the shares also offer a dividend yield of nearly 6%. This sits just below the latest inflation figure but hedges me to some degree against high rates. It certainly beats me leaving my cash sitting in a savings account, even at the higher rates they pay at the moment. While dividend payments are always at risk of being cut, Barclays’ payout being covered comfortably by earnings provides me with confidence.
The bank recently posted a set of underwhelming Q3 results, which saw its share price take a hit. It forecasts earnings for the year to come lower than previously expected. It also expects some extra costs in Q4 that could impact its bottom line.
I also imagine the stock suffering in the short term as inflation sticks around and rates remain high. This could lead to loan losses and higher impairment rates.
Regardless, with a low valuation and meaty yield, I like Barclays. I see an undervalued stock. And as a global bank, I think it’s well placed to weather any storm in the months ahead. With investors rushing to dump the stock, and with it sitting below 130p, I’m taking a page from Buffett’s book and being greedy.
I already own Barclays shares. In the weeks ahead, I’m looking to buy some more.
