Warren Buffett is easily one of the greatest minds alive, and has made his fortune by investing in quality companies. He picked the best companies over the years and invested in them. Even now, he doesn’t get cocky — every investment he makes, he does his homework.

The market has been crashing in the last several months. However, I continue to invest with the same conviction as ever as I am using the philosophy of Warren Buffett.

“If a business does well, the stock eventually follows.”

Warren Buffett is a value investor. He looks for great companies — more specifically, companies with a competitive advantage such as American Express, Apple or Diageo — and he has the patience to see his investment thesis play out over many years, if not decades. He chooses a company based on its intrinsic value and the company’s ability to continually increase it. Buffett’s holding company, Berkshire Hathaway, most recently purchased HP.

HP has many flaws and I was surprised when Warren Buffett acquired it; however, HP excels in free cash flow. During the past five years, the company has averaged nearly $4bn of free cash flow per year. This is a very healthy indicator, the kind that fits with Buffett’s philosophy.

Let your winners run!

Warren Buffett once said: “Our favourite holding period is forever.” He has gone through many recessions and has held onto his shares, like Coca-Cola, which he has owned since 1980 and accounts for more than 8% of his portfolio today.  Clearly, he is a long-term investor. He knows what he buys and he lets his picks run. Obviously, Buffett prefers time in the market over timing the market.

A value stock is a dividend stock???

Warren Buffett encourages buying shares in companies that have solid balance sheets, quality earnings, and strong pricing power. Companies that pay dividends normally meet these principles. And Buffett loves a good dividend stock. The reason is quite simple. Dividend-paying companies are almost always profitable and typically have time-tested business models. Surprisingly (or not), all five of Warren Buffett’s top holdings pay dividends.

Buffett loves the power of compounding and so do I. I use my dividends to buy more shares, and then I use the dividends from these new shares to buy even more shares. Over the long run, I built a dividend snowball!

What have I learnt from Warren Buffett?

My strategy hasn’t changed a bit although a potential recession and stagflation are on the table. I continue to invest periodically, despite the stock market being up or down.

My focus is to buy quality companies and holding them for a long period of time, and therefore the short-term oscillations don’t concern me. I even like to say that in the short term, the market can fall as much as it wants, it will only make me eager to buy at a cheaper price. As Buffett said: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

The post Why I am using Warren Buffett’s wisdom to grow my wealth appeared first on The Motley Fool UK.

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Renato Neves owns share in American Express, Apple and Coca Cola. The Motley Fool UK has recommended Apple and Diageo. 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.

A recession-proof stock

One sector where I am adding more money to protect my portfolio against a recession is consumer staples. These are companies that provide a set of essential products used by consumers, including items such as food and beverages, household goods, and hygiene products.

You have probably bought cleaning products like Skip, Surf, or Cif, or maybe you use everyday products such as Rexona or Ace or have drunk Lipton. All these well-known brands are owned by Unilever (LSE: ULVR). In a recession, the rising cost of living might force consumers to spend less on things that they can do without. Unilever appears to be able to use its strong portfolio of brands more effectively. However, CEO Alan Jope recently mentioned how inflation will be one of the biggest challenges the business faces this year.

The shares currently have a yield of 4.30% and have been paying dividends since 1990. That means Unilever has gone through three recessions without cutting its dividend. The company is the kind of stock that I’d like to own in my portfolio — and, indeed, do!

An 11.1% dividend yield stock!

Houses demand has outpaced supply in the UK, keeping demand for new-build properties on the rise. Persimmon (LSE: PSN) had a strong 2021. The average selling price of a house in the UK has gone up, and yet this was not an issue for the company, seeing its number of completions rise. Another thing that attracts me is the Persimmon dividend , which currently yields over 11%, helping me keep ahead of inflation.

There is a risk that the Bank of England rate hikes could hit mortgage affordability and decrease demand. However, as a new home-owner, the interest rate hikes have not slowed me down from buying a house, as paying rent is always dead money in my opinion.

I am aware that the increase in the cost of construction materials could harm the company’s margin and results. I want to see in the next earnings release if the company absorbed these costs or managed to pass them on to the consumer.

Finally, by adding these two stocks to my portfolio and reinvesting the dividends to buy more shares every year, I could benefit from the wonders of compounding. That should result in a much larger pot over time.

The post Here are two passive income stocks for a recession appeared first on The Motley Fool UK.

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Renato Neves owns shares in Unilever. The Motley Fool UK has recommended 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.

Ocado Group (LSE: OCDO) is a FTSE 100 supermarket stock that is up by 620% since its IPO in 2010. This translates to an annualised return of 38% over the past five years, even after a drop of more than 55% since its peak in February 2021. It makes me wonder whether Ocado is a bargain or a value trap.

Ocado holds over 15% of the UK online grocery market share. The company uses its own software called Ocado Smart Platform (OSP), launched in January 2022, which means a bigger addressable market, the opportunity to win new partners more quickly, and fresh opportunities for growth.

Online trends

Due to the pandemic, millions of consumers have switched to online shopping and e-commerce, changing their way of shopping in just a few weeks. It helped the disruption that digital technologies are bringing to online grocery shopping.

However, as normality returns, consumers are returning to previous habits. Impressively, Ocado’s revenue grew 7.14% over the previous year.

Results

Ocado’s revenue has grown year over year (YOY), reaching £2.5bn in 2021. Looking closer, its international revenue increased from £17m to £67m in 2021, up 300% YOY. The orders per week indicator was up 11.9%, however, the average basket value was £129, down 5.8%. One potential reason to see this indicator falling is due to consumers spending less, as they have less buying power nowadays.

Overall, it was a strong financial year and, as the icing on the cake, Ocado reported 832,000 active customers, up 22% YOY. In addition, Ocado has more cash than debt, a very important metric to which I pay special attention.

However, what worries me most, and the reason why its shares are potentially risky, is the bottom line. Ocado has never turned a profit, and the group recorded a £186m loss for the period.

My take

I believe that Ocado has a network effect, which means that the more business partners join Ocado, the more consumers will be attracted and vice-versa. The group is also aware of it and is improving the partner’s experience. Ocado announced partners can use their own webshop and app solutions while taking advantage of the data-collecting and analytics of OSP. This is a benefit that will surely entice more partners to sell through Ocado in my opinion.

Ocado is a speculative stock and, as consumers revert to their pre-pandemic in-store shopping habits, the share price may struggle in the short term. However, I invest by thinking long term and I see a competitive advantage over other competitors. Online grocery shopping will be the future in my opinion and Ocado Group is well positioned in this market. Therefore, I will be adding the stock to my portfolio with a view to holding it for at least the next five years.

The post Why I’m backing this FTSE 100 stock to recover from its 55% downfall and soar again! appeared first on The Motley Fool UK.

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Renato Neves has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. 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.

Warren Buffett is one of the most successful investors of all time, and as of today, he is the fifth richest person in the world. In the 2008 letter to Berkshire Hathaway‘s shareholders, Buffett wrote “Price is what you pay; value is what you get.” Before Covid-19, Lloyds Banking Group (LSE: LLOY) shares were trading at around 65p. I do believe there are reasons for me to be bullish on this stock and it could return to trading at pre-Covid prices, but there are also risks to be aware of.

Interest rates are the key

Rising inflation is often accompanied by interest rate hikes, as we’ve seen in the last couple of months in the UK and the US. Banks look at interest rates hikes like kids look at sweets. They generate a large portion of their revenue from the spread between the rates they charge to lend money and the rates they offer to borrow it. When rates are higher, they have more margin to widen the spread.

This year, the Bank of England (BoE) and the US Federal Reserve (FED) have raised interest rates. The last BoE meetings resulted in interest rate hikes three times in a row. Meanwhile, the FED has hiked once already and we could see as many as five or six more hikes this year, and possibly three or four more in 2023.

However, I need to be aware that due to rising inflation and the cost of living, people are less likely to take out loans from banks. That would not count in the company’s favour.

Lloyds makes the move

Lloyds has announced it will shut 60 branches across the UK. The bank said “The public’s shift to online banking meant that fewer customers were now visiting its branches”. With this strategy, the bank wants to reduce its day-to-day overheads and eventually increase the likelihood of higher earnings. That’s good news for shareholders.

However, there are still people who prefer to visit a branch. As a result, Lloyds may lose customers as they shift to competitors who have physical branches.

What I’d do

Warren Buffett has previously stated that “whether we’re talking about stocks or socks, I like buying quality merchandise when it’s marked down”. I have no doubt Lloyds is a great business holding a lot of potential. It is also worth noting that its price-to-earnings (P/E) ratio is just 6.4 and the price-to-sales (P/S) ratio is below 1. That’s dirt-cheap.

Increased interest rates have the potential to both benefit or harm the company. Yet wider factors such as its low valuation and strong dividends, for me, make Lloyds Banking Group shares appealing. I think the share price offers great long-term value. Therefore, I think this is a stock that Warren Buffett would be willing to look into further.

The post Warren Buffett loves investing in banks. Could Lloyds Banking Group shares fit in his portfolio? appeared first on The Motley Fool UK.

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Renato Neves has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Rio Tinto has interests in exploring, mining, and processing mineral resources worldwide. The company offers aluminium, copper, iron ore, and minerals such as titanium dioxide, diamonds and borates among others. Rio Tinto is expanding its frontiers and meeting the increasing demand for critical minerals, such as lithium and scandium.

The lithium market is increasing massively, and nowadays it is used in rechargeable batteries for mobile phones, laptops, digital cameras and electric vehicles. Recently, Tesla announced the switch to lithium in its longer-range vehicles.

Results

On 23 February, Rio Tinto announced annual results for the year ended 2021.

At £63.5bn, sales rose 42% year-on-year (YOY). The bottom line moved 116% higher to £21.1bn, the biggest surge in the firm’s history. The company sustained its debt stable and positively increased its cash and cash equivalents from £12.9bn to £15.2bn. Free cash flow increased 88% YOY to £17.7bn even after £15.3bn in dividends were paid to shareholders. As a whole, the company has done an amazing job improving its balance sheet, leaving it in a very strong position to grow.

It will be difficult to maintain growth next year after a great 2021. In addition, operating costs are expected to rise, which could squeeze profits. As a result, I will be paying attention to Rio Tinto’s performance in the coming quarters/years.

Dividend

With a dividend yield of over 10%, it is clear that will be difficult to continue to increase its dividend as it did in the past. But is this a safe dividend or could the company cut it in the near future? Well, with an 60% average pay-out ratio over the past six years, it reflects an exceptional financial result, strong balance sheet and disciplined ramp-up of investment. It makes me comfortable to say the company has no need to cut its dividend.

Final thoughts

Because of this, I am very optimistic in my outlook for Rio Tinto. Furthermore, since the Russian invasion of Ukraine, commodities have been heavily affected and volatility is on. Several companies in this sector have been affected by geopolitical tension. Fortunately, Rio Tinto does not operate in any of these countries, and its operations were not directly affected. That doesn’t mean its share price would not suffer.

From a valuation standpoint, Rio Tinto has a price-to-earnings (P/E) ratio of 6.4 times and a price-to-sales (P/S) ratio of 2.13 times, which makes it undervalued compared to FTSE 100 peers.

While in the short term there is turmoil in the market, there is a lot to like about this company in the long term, which is why I have added the stock to my portfolio with a view to holding for at least the next five years.

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Renato Neves owns shares in Rio Tinto and Tesla. The Motley Fool UK has recommended Tesla. 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.