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5 shares I think Warren Buffett might buy if he were a Brit

Legendary investor Warren Buffett tends to stick largely to US companies. However, he’s ventured into the UK market occasionally. He held a sizeable stake in Tesco for a spell. He also had a tilt at advertising giant WPP back in 2012 and Unilever in 2017, but was rebuffed on both occasions.

He revealed at this year’s meeting of his Berkshire Hathaway investment company that he has an appetite for “making a very large acquisition in the UK.” He told the Financial Times: “We’re never going to understand any other culture or the tax laws or the customs as well as the United States, but we can come awfully close in Britain.”

Buffett’s occasional forays into Blighty and recent interest in making a big acquisition have got me thinking. What if he were a Brit, managing a UK equity fund? Which London-listed stocks might be on his shopping list?

A Footsie five

Buffett’s investment philosophy is well known. In a nutshell, he likes predictable businesses with wide ‘economic moats’, and strong balance sheets and cash flows. And he likes to buy them at a reasonable price.

In my search for suitable candidates in the FTSE 100, I’ve looked at top-ranking companies from Morningstar’s analysis of economic moats, the top 10 holdings of the Lindsell Train UK Equity fund run by Nick ‘Britain’s Warren Buffett’ Train, and the top 10 holdings of the CFP SDL UK Buffettology fund, managed by Keith Ashworth-Lord.

The table below shows the five Footsie stocks that appear in at least two of these three screens, as well as a measure of historical performance (10-year annualised total return) and valuation (forward 12-month price-to-earnings ratio and dividend yield).

  M’star wide moat Lindsell Train top 10 Buffettology top 10 10-year annualised return (%) Share price (p) P/E Yield (%)
Diageo 15.7 3,449 24.3 2.1
Unilever   14.3 5,053 20.9 3.1
London Stock Exchange   26.7 6,526 31.8 1.1
Experian   19.1 2,520 29.0 1.6
Relx   16.8 1,978 20.6 2.4

Drinks giant Diageo appears in all three screens. The company was formed by the merger of Guinness and Grand Metropolitan in 1997. Buffett actually owned shares in Guinness in the early 1990s, but reportedly sold before the merger.

Diageo’s been a strong performer over the years. My colleague Kevin Godbold described it as “a good advertisement for buy-and-hold, long-term investing,” and said he’d buy the stock after its strong results last week.

Plenty of Motley Fool fans

Buffett’s tilt at Unilever a couple of years ago — via Berkshire- and 3G Capital-backed Kraft Heinz — was pitched at 4,000p a share. The price is a good bit higher today, but my colleague Harvey Jones is convinced the stock remains a buy.

Similarly, London Stock Exchange, Experian (one of the top three global credit checking agencies), and Relx (a global provider of information-based analytics and tools for professional and business customers) all have plenty of fans here at the Motley Fool.

Reasonable prices?

I too admire all five companies, and believe they’re outstanding businesses, meriting premium valuations. The question is always how much of a premium is a reasonable price?

Unilever and Relx are stocks I’ve tipped before at around their current P/Es and yields, and I’d be happy to buy them today. Diageo, London Stock Exchange and Experian are stocks I’ve seen value in at lower levels than today’s. I don’t think I’d be buying these three currently, but if I owned them, I’d be inclined to continue holding.

I wonder what Warren would do?

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G A Chester 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 the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares) and long January 2021 $200 calls on Berkshire Hathaway (B shares). The Motley Fool UK has recommended Diageo, Experian, RELX, and 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.