‘Britain’s Warren Buffett’ is the nickname given to portfolio manager Nick Train, who co-manages a number of top-performing equity funds. He is generally regarded as one of the UK’s top stock pickers. Indeed, his performance track record is so impressive that ‘Britain’s Warren Buffett’ seems like a fair description.
This year, Train has been buying a number of stocks for his portfolios amid the coronavirus-related market volatility. If you’ve some money to invest right now, I think it could be worth looking at what the portfolio manager has been buying.
Train loves this Warren Buffett-type stock
One of the first stocks Train bought when stocks began to wobble earlier in the year was alcoholic beverages champion Diageo (LSE: DGE). This is a FTSE 100 firm Train is a big fan of. Today, it’s the second-largest holding in his Global Equity fund, and the fifth-largest holding in his UK Equity fund, according to data from Hargreaves Lansdown.
It’s not hard to see why Train likes Diageo (and why Warren Buffett himself might like it if he bought UK stocks). Put simply, it’s a classic Buffett-type stock. Not only does it have a strong competitive advantage due to the power of its brands (Johnnie Walker, Smirnoff, Tanqueray, etc) but it’s also highly profitable. In addition, it’s a reliable dividend payer with a superb long-term track record of generating shareholder wealth.
Diageo shares have actually continued to fall since Train was buying earlier in the year. This means you can pick the shares up at a lower price than he paid.
Personally, at the current valuation (trailing P/E ratio of 21), I think Diageo shares look attractive right now. Covid-19 is certainly going to set the company back in the short term, however, the long-term growth story associated with emerging markets growth remains intact.
FTSE 100 profits powerhouse
More recently, Train has been buying shares in financial services company Hargreaves Lansdown (LSE: HL). Late last month, Lindsell Train Limited increased its ownership of the FTSE 100 stock from 12% to 13%. That means ‘Britain’s Warren Buffett’ spent somewhere around £70m on Hargreaves Lansdown shares. Clearly, he’s confident in the outlook.
I can see why Train likes Hargreaves Lansdown. Like Diageo, it’s very much a Buffett-type stock. For a start, the company is one of the most profitable in the entire FTSE 100 index. Last year, return on capital employed (ROCE) – a key measure of profitability – came in at 69%. By contrast, the five largest non-bank companies in the FTSE 100, AstraZeneca, Unilever, Shell, GlaxoSmithKline, and British American Tobacco, averaged a ROCE of 11%.
Secondly, it’s the leader in the investment management platform industry with a market share of around 40%. This provides a competitive advantage.
Third, the long-term growth story here looks attractive. We all need to save and invest more for retirement and Hargreaves should benefit from this. On top of this, rising stock markets should boost assets under administration in the long run.
Hargreaves Lansdown shares are currently down about 25% this year. At today’s prices, the trailing P/E ratio is about 28. At that valuation, I see the stock as a ‘buy’.
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Edward Sheldon owns shares in Diageo, Hargreaves Lansdown, Unilever, GlaxoSmithKline and Royal Dutch Shell, and has positions in the Lindsell Train Global Equity and Lindsell Train UK Equity funds. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo and Hargreaves Lansdown. 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.