Warren Buffett, as a value investor, is well known for investing in companies that he thinks are trading for less than their true worth. Through his company, Berkshire Hathaway, he has invested in UK companies in the past. For example, he previously bought and sold a stake in Tesco. Berkshire Hathaway was supportive of the attempted £115bn takeover of Unilever by US company Kraft Heinz.
Based on these examples, I think he would, in theory, like these cheap UK shares.
WPP is a dirt cheap FTSE 100 share
WPP (LSE: WPP) is probably a classic sort of stock to catch the Sage of Omaha’s eye. It’s well out of favour, which suits a contrarian/value investor.
As Buffett says: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.
That’s certainly the case with the WPP share. It’s in bargain basement territory. Its P/E is 10 (below the 10-year average, which is 12). Also, the share price is down more than 40% over the last five years. 2020, in particular, was not kind to WPP investors. The share price went from around 1,061p to nearly 820p at the time of writing.
So why might Buffett be interested?
Buffett, famously averse to tech, has in recent years become more amenable to investments in the sector, which rose strongly last year. With WPP’s stated aim of making commerce, experience, and technology account for 40% of its business by 2025 (compared to 25% today) there’s some catalyst for a rerating there, if successful.
WPP also has an aim to pay out 40% of reported earnings per share. On top of that, it has been cutting debt, largely off the back of selling Kantar. Overall then WPP is a cheap share that a value or contrarian investor may well now be interested in snapping up post-Brexit.
Buffett and a pharma that might catch his eye
On the other side of the Atlantic, Buffett has put a lot of money into the pharmaceutical sector in recent times. That might well make GlaxoSmithKline (LSE: GSK) a cheap share that he’d be interested in.
Like his American pharma holdings, GSK is a big, well-known player in the industry. It’s a leader in vaccines and is increasingly beefing up its research and development in oncology. It’s also going to become a simpler business, like WPP, when it spins off its consumer division.
All in all, combining a cheap share price and turnaround potential, I think GSK is a share that Buffett could be interested in. Even if not, I like the shares for their value and recovery potential. I think they could very well be undervalued, especially if GSK, with its renewed R&D focus, can come anywhere near the success in the last five years or so of rival AstraZeneca.
So, these are two cheap shares that I will keep eye on and possibly add as part of a diversified portfolio. I expect both could do very well this year, and beyond.
