The Motley Fool

I’d follow Warren Buffett and buy the best undervalued shares to make a million

The FTSE 100 index is still down by 17% since the beginning of 2020. While another major sell-off could be lurking just around the corner, I certainly wouldn’t count on it. After all, many companies listed in the index are trading on cheap valuations relative to pre-crash levels, offering a wide margin of safety for investors buying today. With that in mind, I’d follow the example of an investing mastermind like Warren Buffett and buy the best undervalued shares on the market to build serious wealth. 

Warren Buffett’s value investing

The aftermath of a stock market crash provides ideal hunting ground for spotting undervalued companies. With depressed share prices that may be struggling to recover, investors can pay lower prices than they would in normal market conditions.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

While it’s notoriously difficult to buy at the bottom, following Buffett’s advice to pay a fair price for high-quality companies means that timing the market becomes far less important. After all, Buffett owes his success to the time he spent in the market, not his timing of the market.

When on the lookout for the best undervalued shares, it’s important to keep a few key factors in mind. For example, evaluating a company’s price-to-earnings ratio. This measurement determines the market value of a company relative to its earnings. A low P/E (roughly less than 15) may suggest that a company’s shares are undervalued. Conversely, a high P/E (roughly greater than 15) could indicate that a stock is overvalued.

There are exceptions to this however, and it’s important to compare P/E ratios on an industry basis for a more accurate comparison. According to Buffett, more important factors include the strength of the underlying business and whether it possess a competitive advantage over its peers. 

Make a million after the market crash

Market sentiment towards an undervalued stock often improves over time. Consequently, investors usually profit through a combination of considerable share price appreciation and healthy dividend payments. Additionally, if ploughed back into the original investment, these dividends fuel the compounding process.

Ultimately, buying the best undervalued shares may not result in you becoming a billionaire, like Warren Buffett. But it could certainly improve your chances of growing a tidy sum. Key to this undertaking is unlocking the potential for compound returns. This is the process that turns a relatively small investment into huge return. 

To illustrate, a £10,000 investment that achieves an annual return of 9% would be worth £132,675 after 30 years. Supplement this with regular monthly amounts and your prospects of achieving a six-figure portfolio increase dramatically. 

Evidently, the possibility of a second stock market crash remains on the horizon. That said, I believe investors who stick to their strategy and ride out the temporary market downswings can expect to profit handsomely over the long term.    

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Matthew Dumigan 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.