The FTSE 100 has recently reached a new record high of 7,562 points. This may cause investors to determine that there is a lack of value in the index, since it has never been this high before.
As such, finding investment opportunities which are in line with Warren Buffett’s core belief of paying only a fair price may be more challenging at first glance. However, with the market continuing to be inefficiently priced, the reality is that there may be more value investment opportunities than many investors realise at the present time.
Buying UK-focused stocks
While it may not be possible to now buy the index at a relatively low ebb, a number of companies within the FTSE 100 appear to trade on attractive valuations. In fact, the rise in the index’s level in the last couple of years has largely been driven by Brexit. This has caused the pound to weaken as confidence in the UK’s economic outlook has deteriorated. A weaker pound has boosted the valuations of internationally-focused companies, with many UK-focused stocks failing to deliver the same level of growth as their global counterparts.
While many companies in the index have international operations, some are more dependent on the UK than others. Therefore, focusing on UK-focused stocks could be a means of obtaining a fair price right now. Certainly, there are risks ahead for the UK economy, but it’s rare for a stock to be lowly-valued without good reason.
While Warren Buffett is not known as an investor who specifically seeks out turnaround opportunities, some companies in the FTSE 100 offer impressive forecasts which could catalyse their earnings. In some cases, these companies are operating in troubled industries, where trading conditions have been unfavourable in recent years. This could create a wide margin of safety, which could translate into high profits in the long run.
One example of such an industry is the oil and gas sector. It has been hit hard by the falling oil price and this has caused profitability and valuations across the sector to decline. However, there are a number of oil majors yielding in excess of 6%, while those same companies also offering the prospect of rapid profit growth over the medium term. For those stocks which have strong balance sheets and diverse asset bases, there could be an opportunity to follow Buffett’s well-worn path of buying high quality companies at fair prices.
The FTSE 100 may have reached a new record high in recent trading sessions and this could mean that some stocks are now overvalued and offer little or no margin of safety. However, due to inefficient pricing, there are undoubtedly a number of shares within the index which may offer good value for money. Therefore, it is still possible to invest like Warren Buffett at the present time.