Despite the success of Apple, the billionaire investor said he’d be looking for value opportunities – smaller companies that others might be overlooking. And I think the UK’s a great place to find these.

What would Buffett do?

Finding an undervalued opportunity is easier in a place where nobody else is looking. When more people are thinking about a stock, it’s less likely they’ve all missed something big.

As Buffett put it: “I would try to know everything about everything small. And I would find something and with a million dollars you could earn 50% a year, but you have to be in love with the subject.”

This isn’t an option for Buffett nowadays, because a 50% return on $1m doesn’t make much of a difference to a firm the size of Berkshire Hathaway. But this isn’t a problem that applies to me.

With UK shares, finding something everyone else is missing in the FTSE 100 or the FTSE 250 is rare (though not impossible). Beyond this though, there are stocks that get a lot less attention.

UK stocks

One example is Crystal Amber Fund (LSE:CRS) – an activist investor firm. The company has a market-cap of £81m, but there are reasons for thinking it’s worth a lot more than this.

Crystal Amber owns a 17% stake in a company called De La Rue. The business provides online and physical authentication solutions and produces banknotes, but this isn’t really the point.

The important bit is that De La Rue has accepted a takeover bid of £300m for its authentication division. And Crystal Amber reckons this could leave the firm with net cash of £140m. 

On top of this, the activist investment firm is pressing for the sale of De La Rue’s currency division. It anticipates realising around £150m as a result. 

Value

If all of this is correct, the stock looks like a bargain. The sales of De La Rue’s operations could bring in £290m and 17% of that could leave Crystal Amber with just under £50m.

In the context of an £81m market-cap, that’s a lot of cash. And this is before getting on the company’s other investments and what they might be worth. 

Of course, there’s always uncertainty. Finding a buyer and achieving the anticipated price for De La Rue’s currency business is by no means guaranteed. 

Nonetheless, I think this is the kind of thing Buffett has in mind in terms of opportunities that most people are missing. Investors seeking undervalued stocks should take a closer look. 

Opportunities

The downside to Buffett’s approach is that it involves finding lots of these opportunities in order to achieve long-term success. As the value from one is realised, it’s time to find another. 

That can be a lot of work, but Buffett’s adamant there are still undervalued stocks in places where most investors aren’t looking. And the rewards from finding them can be terrific.

The post Here’s how Warren Buffett says he’d start investing today appeared first on The Motley Fool UK.

Unloved utilities

Woodford has viewed the utilities sector as an attractive fishing ground in recent months. During January, he added to his existing holdings in companies in this industry, “as further political interference caused renewed share price weakness in the energy utility sector”.

The CF Woodford Equity Income fund increased its stake in FTSE 100 energy giants Centrica (owner of British Gas) and SSE (owner of brands including SSE, Scottish Hydro and Southern Electric). The companies’ dividends are a big attraction for Woodford: both offer a forward yield of around 5.6%.

Game on

Video games retailer Game Digital is another company that has been out of favour with the market of late. The FTSE 250 firm issued a profit warning in mid-January, citing fierce competition during the Christmas period. Woodford’s team said:

“This was disappointing, but one poor trading update does not undermine what we see as a strong long-term investment case. The shares fell immediately and sharply after the warning and we took advantage of this by materially adding to our holding at what we believe to be very attractive valuation levels”.

Analyst estimates put Game on a current-year P/E of 15, falling to 12 next year with strong earnings growth forecast.

Amber gambler

Woodford has also revealed that he opened a new position in activist investor Crystal Amber during January (a company he’d previously been invested in at Invesco Perpetual).

Crystal Amber aims to deliver long-term value for its shareholders through active engagement with the companies in which invests, and Woodford fund spokesman Stephen Lamacraft tells us: “We hold its management team in very high regard”.

Crystal Amber is invested in a number of mainly smaller-cap listed companies, but came to wider attention before Christmas when rumours circulated that it was in talks with heavy-firepower overseas investors about launching a raid on Sainsbury’s to shake up the supermarket’s management and strategy.

Hip firm replacement

Woodford funded his purchase of Crystal Amber shares, and his January top-ups, partly by selling what had been the CF Woodford Equity Income fund’s fairly substantial holding in medical devices firm Smith & Nephew.

Bid speculation sent Smith & Nephews shares up to an all-time high of 1,200p during January, putting the company on a forward P/E of 21, with a dividend yield of 1.7% — one of the lowest in the FTSE 100.

In exiting Smith & Nephew, Woodford’s team noted: “Clearly, if a bid were to materialise, it could lift the share price higher still but we believe other opportunities now offer greater long-term income potential”.

The post Neil Woodford’s Latest Buys And Sells: Centrica PLC, SSE PLC, Smith & Nephew plc, Game Digital PLC & Crystal Amber Fund Limited appeared first on The Motley Fool UK.