Billionaire investor Warren Buffett is well known for his patience, only buying when the price is right. At the last count, Buffett’s company Berkshire Hathaway had around $128bn of cash on hand.
I suspect that Mr Buffett may find some new buying opportunities over the coming months. Although the Oracle of Omaha doesn’t generally invest in non-US companies, I’ve identified three FTSE 100 stocks I think he might like.
Simple, defensive and profitable
Consumer goods group Unilever (LSE: ULVR) is known for producing household brands such as Domestos, Hellmann’s, Knorr and Persil. Products such as these generate consistent profits, year after year.
This is just the kind of business Mr Buffett likes to own. Indeed, we already know that he likes Unilever. In February 2017, he liked it so much he tried to buy it! Buffett teamed up with US firm Kraft Heinz to launch a $143bn bid for the FTSE 100 group.
This offer was swiftly rejected and the deal wasn’t pursued. But the Kraft-Heinz bid valued Unilever stock at $50 per share, or around £39. That’s pretty much where the share price is today, even though the company’s earnings are now higher.
In a recent article, I said that I’d buy Unilever when the shares offered a dividend yield of 4%. At today’s exchange rates, I estimate that would need a share price of about 3,850p. As I write, Unilever shares are changing hands for 3,920p. I think this could be a good opportunity to build a stake in this world-class business.
High tech, high profits
Mr Buffett doesn’t invest much in tech. But I suspect he might see some attractions in consumer credit rating group Experian (LSE: EXPN). This FTSE 100 firm has branched out to become a data services company in recent years, providing a valuable range of services to businesses and individuals.
Data of this kind is very valuable and demand for Experian’s services is growing. Revenue rose by 7% during the final three months of 2019. Profit margins are high too. Last year, this £21bn firm generated an operating margin of nearly 24%.
Experian shares rarely look cheap. Even after today’s market sell-off, the stock is still trading on 27 times forecast earnings. Further falls are possible. But I see this company as a high achiever that’s always likely to look expensive. I’d be happy to open a starter position at current levels.
The right medicine
Sadly, there’s no cure yet for coronavirus. But if we look beyond this outbreak, I’m pretty confident that demand for modern medicine will continue to grow over the coming decade.
I’m not a pharma expert and don’t know exactly where the winners and losers will be in the healthcare sector. So my top healthcare stock pick is FTSE 100 group GlaxoSmithKline (LSE: GSK). I reckon this large, diversified business is likely to be better equipped than I am to identify and profit from key growth areas in the coming years.
I’m not sure whether Mr Buffett invests in pharma stocks. He’s always careful to stick to businesses he can understand — and pharmaceuticals are pretty specialist. However, Glaxo also has a consumer healthcare division that owns well-known brands such as Sensodyne, Nicorette and Voltarol. I reckon he might be tempted.
I’m certainly interested. I already own GlaxoSmithKline shares, but the share price fall has boosted the stock’s dividend yield to 5.2%. At this level, I’d like to buy more.
It’s ugly out there…
The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.
And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.
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Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares), GlaxoSmithKline, and Unilever. The Motley Fool UK has recommended Experian and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). 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.