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Investing lessons from Warren Buffett’s UK buys

Ace investor Warren Buffett’s selection criteria serve as great investment guidelines, even if his UK investments haven’t always gone well. He famously said that investing in FTSE 100 retailer Tesco was a “huge mistake” a few years ago.

It might have been one for him, but for us, it’s an education from the Oracle of Omaha’s experience that can steer us towards steadier investments.

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One example is his successful investment in the profit-making Northern Powergrid, which provides electricity in North East England, Yorkshire, and Lincolnshire. It isn’t publicly, listed making it out-of-bounds for retail investors, but I believe utility companies in the FTSE 100 universe can offer similar investing opportunities.

Value for money

A case in point is United Utilities (LSE: UU), which supplies water in North West England and also produces renewable energy. It meets a number of Buffett favoured criteria – growing business as seen in terms of revenue and the capacity to make profits consistently.

It’s also secure from macroeconomic vagaries, being a defensive share and has a far lower price-to-earnings ratio (P/E) of 16.3 times than other FTSE 100 defensives like the pharmaceutical giant AstraZeneca. And this is when it’s trading at one-year highs. This ticks another Buffett criterion, which is value for money.

I’m inclined to believe that he wouldn’t be comfortable with the company’s rising debt as flagged in the latest trading update. On the whole, UU remains a share worth considering at the very least.

Impressive price performance

Another utility company I have long liked is Northern Grid (LSE: NG), which has had a pretty good run at the stock markets in 2019 so far. This is the third time I am re-visiting this share, and each time its price has inched up more. From the first time I wrote about six months ago up to the last close, its price is up over 13% and even from the last time, two weeks ago, it’s up 1.4%.

Like UU, its revenue is predictable compared to cyclical businesses and it’s a profit-making entity as well. Despite being a healthy company with rising share price, it also has a relatively affordable P/E of 20 times, making it, I believe, a Buffett-worthy share to invest in.

Both UU and NG run the risk of potential nationalisation if Labour comes into power. With a general election an imminent possibility in the next month, this may well be a real occurrence in the future.

But if I’ve learnt anything from the Brexit process so far, it’s that the best assumption is that nothing will change, otherwise we risk missing out on quality shares.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.