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What shares might Warren Buffett buy in post-Brexit UK?

In his characteristically understated way, Warren Buffett said of Brexit “I have the feeling it was a mistake.

But, Brexit or no Brexit, Mr Buffett still has his investing eyes set on the UK and on Europe. Speaking at this year’s annual Berkshire Hathaway shareholders’ meeting, he said: “We’re hoping for a deal in the UK and/or in Europe, no matter how Brexit comes out.” He added: “It doesn’t destroy my appetite in the least for making a very large acquisition in the UK.

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Mr Buffett has made mistakes here before, mind, as he made a major investment in Tesco before the supermarket giant suffered its big fall — a “huge” mistake he subsequently called it.

Takeover bid

And Kraft Heinz (in which Berkshire Hathaway has a 26.7% stake) failed in a hostile $143bn takeover attempt on Unilever in 2017. Subsequently, Mr Buffett said he wouldn’t be making any further bids, but it does show the kinds of companies he’s interested in — ones with very wide global consumer reach, and which are strongly cash generative.

At the time, the offer of $50 per share was at a premium of 18% to the market price, and at a current price of 4,620p Unilever shares are now changing hands at around $60. It seems Warren Buffett was right to see a bargain, and Unilever’s management was right to say the offer “fundamentally undervalues Unilever” at the time.

Could the Sage have his eyes set on trying to build up a stake in Unilever now? I doubt it, and I’d instead expect to see him targeting his acquisition plans in other directions.

Big stakes

A big problem for Warren Buffett is the size of his success, meaning that to make any significant investment he needs to be looking at stakes of billions of dollars — and that highlights a major advantage enjoyed by private investors. If I were to invest a couple of thousand pounds in a small stock that doubled in a year, that would be significant to me — but it wouldn’t even make a ripple in Berkshire Hathaway’s bottom line.

Mr Buffett has repeatedly said that it’s becoming harder and harder to find suitable investment targets in the US, and reaching out to the UK (and further, into Europe) makes a lot of sense. With the economic challenges facing the UK and the EU, takeover activity has slowed and markets are weak.

I reckon the FTSE 100 is still in one of its most attractive valuation periods for decades, having gained less than 6% over the past five years. At the same time, the cash being generated by the UK’s top stocks is growing in real terms, with an all-time record of £92.2bn expected to be paid in dividends to shareholders in 2019.

Tempting yields

That amounts to a yield of 4.7%, and that’s including all the companies that pay no or small dividends. If you’re looking for bigger FTSE 100 dividends, Standard Life Aberdeen is offering around 8.5%, and Direct Line Insurance has similar yields — and Warren Buffett does like the insurance business.

What might he go for? He has the clout to try for seriously big FTSE 100 companies, but whatever he might choose, I expect it will be something unexpected.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and Unilever. The Motley Fool UK has recommended Tesco. 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.