The S&P 500’s average price-to-earnings ratio has climbed to levels rarely seen in recorded history. Its Shiller P/E ratio (like a 10-year average) has climbed to levels rarely seen in recorded history. Its average price-to-sales ratio has climbed to… Well, you get the idea. 

On many metrics, the most comparable period in the stock market was the dot.com boom. An perfect memory isn’t required to recall that little episode didn’t end up being a great time for growth stocks. 

But this time is different, isn’t it? Fears of stretched valuations and crazy share prices are overblown, aren’t they? That’s because artificial intelligence is well on its way to supercharging profits and transforming the economy, isn’t it? 

Isn’t it…?

Alarming news

An MIT study released in recent days revealed an alarming bit of news. Of initiatives across companies to use AI to increase productivity or efficiency, 95% of them failed to make a return on investment. In other words, only one in 20 firms is using AI profitably. 

Those are crazy numbers, and it seems like the alarm bells are percolating to mainstream news outlets too. Here are a couple of headlines that caught my eye, all from the last four or five days as I write this:

The Guardian: “Is the AI bubble about to burst – and send the stock market into freefall?”

The Telegraph: “The warning signs the AI bubble is about to burst”

Forbes: “Is The AI Bubble Bursting? Lessons From The Dot-Com Era”

Personally, these worrying details have caused me to reallocate a portion of my portfolio into a 4%-returning Cash ISA. Not too much of my holdings in percentage terms, mind. If AI does end up bringing home the bacon, then I’m still well placed to benefit. 

But a risk-free 4% sounds attractive for the next year or two. And if the AI bubble does pop? Then I’ll have a chunk of dry powder to snap up stocks on the cheap. 

A different approach

I’m not the only investor keeping a tranche of their portfolio in cash either. Warren Buffett’s Berkshire Hathaway (NASDAQ: BRKA) has built up a $354bn cash position while whittling equities down to $272bn. The world’s most famous investor has taken a look at the markets and chosen to have more in cash than in stocks!

Berkshire has long been famous for its above-market returns, going back to the 1960s. Will this unprecedented building up of cash be yet another prescient move? Will Buffett and I come out laughing? No one can say for sure. And for potential investors of the $1trn market-cap conglomerate, the recent announcement that Buffett will leave his post by the end of the year is another risk to bear in mind. 

But for anyone looking to swerve the AI mania and take a value investing approach, all while outsourcing the nuts and bolts of portfolio selection, Berkshire Hathaway stock is one to consider.

The post Get ready for a possible AI growth stock crash appeared first on The Motley Fool UK.

That said, I think it’s a useful exercise to ponder which select few shares I’d own, if I had to choose. It makes me focus on what I consider to be absolute quality.

So, here’s my three stocks.

Going for value

For my first pick, I’m going with Warren Buffett. Or, to be more exact, his holding company Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B).

Firstly, this stock would give me incredible diversification. That’s because Berkshire owns some 65 companies across many industries, including insurance giant GEICO and See’s Candies.

It also has positions in around 50 stocks, including massive stakes in Apple and Bank of America. And it owns 400m shares of Coca-Cola, worth about $25bn today.

Plus, the company was sitting on $129bn of cash at the end of 2022. This massive cash pile gives it enormous scope to buy more shares or make acquisitions.

Finally, I like that the stock tends to perform well in troubled markets. For instance, the S&P 500 is basically flat over the last two years, while Berkshire stock has risen 18.5%.

The flip side to this is that the shares could temporarily underperform if growth stocks came back into vogue.

Going cashless

The second stock I’d buy is Visa, which is also owned by Buffett. Its card network facilitates electronic transactions between consumers and retailers in more than 200 countries.

It’s one of the most stable businesses around, reflected in an operating margin that rarely fluctuates outside of the 62%-66% range.

Today, most transactions in the world are still cash-based. So the runway of growth still ahead of the firm seems enormous to me.

Some see cryptocurrencies as a threat to Visa, as such peer-to-peer payments could bypass its network. But I highly doubt the company is threatened. In fact, it’s just started connecting crypto and blockchain networks to its own global payment network.

Going for growth

Thirdly, I’d go with Scottish Mortgage Investment Trust (LSE: SMT). It was launched in 1909 to provide funding to rubber plantations in Malaya amid soaring demand for tyres for the newly created auto industry.

A quick look at the portfolio today shows me I’d be investing in a quite different beast from my previous picks.

Indeed, I’d hope the shares would work somewhat inversely to Berkshire. That is, by outperforming during bull markets and underperforming in times of uncertainty.

Importantly, the trust would also give me exposure to the world’s fastest-growing private companies. These include battery maker Northvolt — with its stated aim to “make oil history” — and SpaceX, which is revolutionising access to space with the ultimate goal of inhabiting other planets.

I’d find it hard to get access to such companies anywhere else — and certainty not for an ongoing charge of 0.32%.

That said, investing in private companies can create problems. Currently, the market fears that the present valuations of the trust’s private holdings may have much further to fall.

As a result, the shares now trade at a massive 20.9% discount to the net asset value (NAV) of the trust.

However, I think this provides some margin of safety for new long-term investors today.

The post 3 stocks I’d put 100% of my money into appeared first on The Motley Fool UK.

But what if I’d invested just one year ago? Has Warren Buffett — the chairman and CEO of Berkshire Hathaway — been able to beat the index?

A good year?

With £500, naturally I wouldn’t have been able to afford a Berkshire ‘A’ share a year ago. Instead I would have had to buy the ‘B’ shares.

Class B shares, first issued in 1996, are more modestly priced and have a correspondingly modest share of equity value in the company.

So, one year ago, I could have just about afforded two Berkshire B shares with my £500. And today, that those two shares would be worth 1.5% more than they were a year ago.

That’s not a great return. However, the weakening pound would have inflated the value of my investment. Today, I’d have about £560 as the pound is around 10% weaker.

However, these returns are relatively impressive when we consider that the S&P 500 — an index tracking the stock performance of 500 large companies listed on stock exchanges in the US — is down 19% over 12 months.

Is now the time to buy?

There’s only one thing stopping me buying Berkshire Hathaway shares, and that’s the strength of the dollar. With the exception of Liz Truss’s time as PM, the pound has never been weaker against the dollar.

The problem is, any gains I’d make through buying and holding Berkshire Hathaway shares could be wiped out by an appreciating pound.

To some, that might not sound too likely right now. But I can’t see things getting much worse. The UK’s economic performance is weak, but something has to change.

And exchange rate fluctuations can have a disproportionately large impact on investments. For example, the pound was down 20% versus the dollar (over 12 months) at its nadir this year. Currencies can fluctuate as wildly as stocks.

But when it comes to the Berkshire portfolio, who am I to comment? Buffett is one of the most successful investors in the world, delivering massive returns over his five decades at the helm.

Yet it’s worth noting that he and vice-chairman Charlie Munger are both in their nineties. They’re unlikely to be running the company for much longer. Although, I’d expect their successor(s) to carry on their success.

The portfolio actually has a rather limited number of holdings (53) considering its size ($680bn). Only one of which is a British firm. But this is because Buffett likes to stick to what he know and only invests in quality companies. This is just one of the core tenets of his value investing strategy that has served the business so well.

The post If I’d invested £500 in Berkshire Hathaway shares 1 year ago, here’s how much I’d have now! appeared first on The Motley Fool UK.

This degree of financial liquidity is one of the main reasons some shareholders are pushing for a dividend. But with fears of stagflation on the rise, is he actually planning ahead for a potential stock market crash?

Warren Buffett’s treasure hoard

At the end of 2021, Berkshire Hathaway held just over $146bn in cash & equivalent assets and short-term treasury bills. Following the start of the stock market correction in 2022, Buffett and his team spent over $51bn buying stocks.

The list of companies included Chevron, Occidental Petroleum, HP Inc, Apple, and Activision Blizzard. The decision to invest in Activision raised a few eyebrows since it appears to be an arbitrage investment, betting on Microsoft’s successful acquisition of the company. That’s quite an unusual move that has yet to pay off.

Overall, it was one of his most active buying quarters since the 2008 financial crisis. Skip ahead to the second quarter, and the spending pattern changes a bit. Berkshire remained a net buyer of stocks, spending a net $3.8bn on acquiring more shares in Apple, Chevron, Occidental Petroleum, and a handful of others. But that’s significantly less than a quarter ago.

Looking at the second quarter earnings, the impact of the 2022 stock market correction can be clearly felt, with the group posting a $53bn loss on its investments. It’s possible that as the economic situation worsened, Buffett and his team began tightening their belts. And then plan on buying more shares once the stock market tumbles further, or potentially even crashes.

It’s worth reiterating that even after all the investments made so far this year, the group still has around $105bn in cash at its disposal.

Planning for the next stock market crash

Looking at the latest activity from Berkshire Hathaway, it’s clear that Buffett continues to deploy his famous strategy of “be greedy when others are fearful, and fearful when others are greedy”.

The firm may be taking big hits to its equity portfolio today, but in the long-term, the group has a tendency to realise enormous gains from buying when prices are in free-fall.

Some investors like to buy shares in Berkshire, or copy its portfolio to tap into the proceeds of Buffett’s investing tactics. However, personally, I prefer to apply his principles to search for explosive long-term winners. Even here in the UK there are undoubtedly countless high-quality businesses with wide competitive moats currently trading at a discount.

Being able to identify these stocks is easier said than done. But by having some cash in reserve, as Buffett does, investors can capitalise on stock market downturns. And by buying top-tier businesses while they’re cheap, they can enjoy impressive returns once the stock market rally inevitably begins. At least, that’s what I think.

The post Is Warren Buffett preparing for a stock market crash? appeared first on The Motley Fool UK.

Higher prices make shares less attractive to investors like me. It means that I have to pay more for the same stocks that I was buying last week and last month.

That makes it harder to find attractive opportunities. But Activision Blizzard and Berkshire Hathaway are stocks that I’m happy buying for my portfolio today.

Berkshire Hathaway

Let’s start with Berkshire Hathaway. Share prices have been going up across the board and Berkshire’s shares are 11% higher than they were a month ago.

That means the stock is less attractive than it was a month ago – I’d rather buy shares at $276 than at $306. But Berkshire is still one of my best shares to buy right now.

The company is facing a number of headwinds at the moment, most notably inflation and the possibility of recession. But I think that Berkshire’s strength will see the business do well over time.

Unlike other insurance companies, Berkshire invests its float in common stocks, rather than bonds. This allows it to earn a greater return than its competitors, which allows it to buy even more stocks.

Why don’t other insurance companies do this? Investing in stocks rather than bonds requires substantial cash to cover the possibility of underwriting losses. Berkshire has this, but other insurers don’t.

In other words, Berkshire’s biggest advantage is its balance sheet. This allows it to be conservative in its insurance writing and to invest at higher rates of return than its competitors.

Activision Blizzard

Activision Blizzard is also one of my best shares to buy right now. In a turbulent market, I think that the stock offers a degree of predictability that is hard to find at the moment.

Since the company is the subject of a takeover bid, the investment thesis isn’t entirely about its earnings. Microsoft is attempting to buy Activision in its entirety at a price of $95 per share.

Today, the Activision share price is $80. This implies a gain of just over 18% if the deal goes through. 

There’s a risk that the deal might not complete, though. If it doesn’t, I think that the stock is likely to fall to around $67, meaning a probable downside of around 16%.

I think that the deal is likely to go through, though. That means that I think the stock is attractive on a risk vs. reward basis.

It’s not just me that thinks this. Yesterday’s 13F filings revealed that Warren Buffett has been buying shares as well.

Shares to buy now

The stock market looks uncertain to me at the moment. Rising share prices are making stocks riskier, so I’m looking for opportunities that are as straightforward as possible.

That makes Activision Blizzard and Berkshire Hathaway two of the best shares for me to buy today. Activision’s future is relatively clear one way or another, and Berkshire has enduring strengths.

As such, with £500 to invest today, I’d look to buy both stocks. 

The post 2 of the best stocks to buy now with £500 appeared first on The Motley Fool UK.

Three of my investments, however, aren’t like that. There are three stocks in my portfolio that I don’t anticipate selling at any price.

This is because they are the highest-quality businesses I own. So if I sold the shares, I don’t think I’d be able to replace them with an upgrade.

Disney

The first stock I’d never sell is Walt Disney (NYSE:DIS). Both the stock and the business have had a turbulent time over the past few years, but I’ve never been tempted to sell my investment.

Like any investment, Disney stock carries some risk. In my view, the biggest risk comes from the cost of continuing to create new content, which could weigh on investment returns.

I think, however, that Disney’s content library gives it a huge advantage over its competitors that offsets this risk. Furthermore, the strength of the company’s back catalogue is basically impossible for rivals to replicate.

Disney is the only stock in this list that I’m actively buying at the moment. I think that the stock is currently undervalued and I’m looking at increasing my investment in the business.

Realty Income

I also have a substantial investment in Realty Income (NYSE:O) that I don’t ever intend to sell. Instead of selling, I plan to keep reinvesting dividends to increase my passive income.

Realty Income is a real estate investment trust (REIT) that makes money by leasing retail properties. Like other REITs, it distributes its rental income in the form of dividends.

The company is exposed to risk in the form of high property prices, which is making expansion difficult. But it has navigated these challenges well before and I think it will continue to do so.

Twenty-eight years of consecutive dividend increases make the stock a Dividend Aristocrat. It also reinforces my belief that the business can perform well in any economic environment.

Berkshire Hathaway

Lastly, I own shares in Berkshire Hathaway (NYSE:BRK.B). This is another stock that I never anticipate selling.

The risk with this stock is that the size of the underlying business limits growth opportunities. But I think that patience will be rewarded over time.

In my view, Berkshire has a unique advantage. It uses the money it receives from insurance premiums to make investments that power its earnings.

This is a good business model, but it takes a lot of capital to make it work. Underwriting its insurance obligations requires significant cash to cover potential losses.

Berkshire’s big advantage is that it has the cash to operate in this way. Other insurance operations don’t have the same protection.

This allows Berkshire to avoid unnecessary risk and be conservative in its insurance underwriting. I think this advantage is durable and so I’m never selling the stock.

The post 3 stocks I will ‘never’ sell appeared first on The Motley Fool UK.

What is the S&P 500?

The Standard & Poor’s 500, or S&P 500, is a stock market index that comprises 500 of the largest companies publicly listed on US stock exchanges. Because it encompasses companies spanning nearly all market sectors and industries, it’s widely considered one of the best benchmarks for the overall health of the American stock market and, in turn, the economy. Specifically, the index also serves as an insightful snapshot of how larger US companies are performing.

Given the strength of the US economy over the last century, numerous index funds are available to investors seeking to replicate its performance. It often serves as a central foundation for many retirement plans. At the same time, actively managed funds often use it as a benchmark to compare their own performance against.

RELATED: How to Buy and Trade US Shares in the UK

Why invest in the S&P 500?

Investing in the S&P 500 index means that you can own shares in some of the best companies in America with just one investment.

Here are three great reasons for investing in the S&P 500:

1. Simple and cheap

Investing in an S&P 500 index fund is relatively straightforward. There are plenty of similar trackers to choose from, most offering the same results at an exceptionally low cost. After all, these trackers are not actively managed funds. And that means more of the investor’s money is going towards growing wealth rather than paying management fees.

Since index funds effectively put an investment portfolio on autopilot, a passive investing strategy is very low-maintenance, making it easy to automate with regular contributions. As a result, this investment vehicle is often considered ideal for retirement accounts, such as SIPPs or Investment Lifetime ISAs.

2. Diverse selection of companies

By investing in an S&P tracker fund, a portfolio gains indirect exposure to 500 of the largest US-listed businesses. That includes companies across almost every sector, such as technology, healthcare, finance, consumer goods, manufacturing, materials, and real estate, among others.

That means if one business or sector is struggling, the adverse impact on an investor’s portfolio can be offset by the strength or continued outperformance of another. That’s why index funds generally provide better diversification benefits compared to a concentrated, hand-picked portfolio of US companies.

3. Track record of great performance

While there have been wobbles along the way, the S&P 500 has historically delivered a return of around 10% per year. At this rate, investors have, on average, doubled their wealth every seven years, assuming a consistent approach to investing.

While there are actively managed funds that have outperformed the index, most have struggled to maintain their lead after accounting for the high management fees. As such, many investors could have enjoyed superior performance if they had opted to effectively own the whole market.

However, as seen in recent years, the stock market can be exceptionally volatile, and that includes the S&P 500. Double-digit drawdowns can and do happen. Therefore, investors should keep in mind that past performance is not a guarantee of similar future returns.

What are the drawbacks of investing in the S&P 500?

While investing in S&P 500 stocks comes with a lot of advantages, there are also some drawbacks to consider. Greater exposure to the technology industry has helped pave the way to superior returns, but it also introduces significantly higher levels of volatility. And this trend has only intensified over time.

Since the S&P 500 is weighted based on market capitalisation, the biggest US tech stocks now dominate. In fact, seven of the largest 10 companies operate within the tech industry. Overall, this sector represents close to a third of the total.

Consequently, despite an investment being indirectly diversified across 500 companies, a portfolio would still be fairly concentrated. In fact, just the top 10 stocks are responsible for close to 38% of overall returns. This is why the S&P 500 has become increasingly more volatile in recent years – significantly more than other large-cap indices such as the UK’s FTSE 100.

There are alternative index funds that allow investors to invest in the S&P 500 on an equal-weighted basis rather than market-cap weighting. This helps restore the diversification benefit of the index. But it also increases the weighting on companies that have underperformed. So while these alternative funds are much less volatile, the returns haven’t been as impressive.

What are the top 10 S&P 500 stocks?

In order of market capitalisation, the 10 largest companies currently dominating the S&P 500 as of January 2026 are:

What is the best way to invest in the S&P 500?

The most common way to invest in this index is through a fund.

Investing in an S&P 500 index fund isn’t really something that needs a lot of maintenance because it should all be arranged automatically. So it’s definitely an investment you can manage yourself. Your only options are to buy or sell the fund.

This is usually done as an exchange-traded fund (ETF). An ETF just means that the fund is available on multiple platforms and exchanges.

How you invest in the S&P 500 will be very similar across all platforms. So, it’s important that you aim for a fund with low fees. All platforms should contain the same companies.

What are the most popular funds?

It’s important to remember that S&P 500 funds should be tracking the same index. This means that any difference in returns should be marginal.

Nevertheless, some are cheaper than others, and there are a few that tend to be very popular amongst investors, such as:

• iShares Core S&P 500 UCITS ETF
• Vanguard S&P 500 UCITS ETF
• Invesco S&P 500 UCITS ETF
• SPDR S&P 500 UCITS ETF
• HSBC S&P 500 UCITS ETF

Bear in mind that some investment companies might call their fund something like ‘The America 500’ fund. This is to avoid paying licensing fees and keep their costs down. Although these can be the same as ‘official’ S&P 500 index funds, it’s always worth double-checking exactly what’s in the fund you’re buying.

What is the minimum investment for the S&P 500?

When investing with funds, minimum investment requirements can creep into the picture. As the name suggests, a minimum investment requirement forces investors to put a minimum amount of capital into a fund in order to invest.

Depending on which index fund, the minimum investment requirement will vary. However, in most cases for index trackers, there isn’t one beyond the share price of the fund itself, especially for an ETF.

For example, the iShares Core S&P 500 UCITS ETF does not have a minimum investment requirement. However, at a share price of around $745 (£558), investors must have at least $745 to start investing in the S&P 500 with this index tracker.

Alternatively, the Vanguard S&P 500 UCITS ETF offers effectively the same access to investing in the S&P 500, but since the share price is currently around £98, it’s far more accessible to investors with smaller sums of capital.

Where can I invest in the S&P 500?

Common ways to invest in this popular index are:

• Using a share-dealing platform or brokerage
• With a robo-advisor
• Through a financial advisor

The cheapest way is to do it yourself through a platform. This will be the preferable option for most people because it is quite a simple investment to purchase and manage.

An investing solutions provider may be difficult to organise because they choose the investments, and a financial adviser is likely to be more expensive with no real added benefit.

How do I invest in the S&P 500 in the UK?

Investors cannot buy the S&P 500 index directly, but they can invest in it through passive index funds that track its performance, such as an exchange-traded fund or ETF. To get started, there are three main steps:

1. Research & Choose An S&P 500 Fund

The most common low-cost way to access the S&P 500 is through ETFs. And two popular options here are iShares Core S&P 500 UCTIS ETF or Vanguard S&P 500 UCTIS ETF, although there are other options.

When selecting a fund, it’s essential to compare the fees, which are usually measured by the total expense ratio (TER). This is measured as a percentage representing how much of your investment will be gobbled up each year. Therefore, a lower TER means more of your money stays invested. Typically, the TER for index funds is usually below 0.1% per year.

2. Pick An Investment Platform

To invest in an ETF, investors need access to the stock market through a Share Dealing Account. Each investment platform offers a different suite of features and tools, so it’s important to check if it has the ETF available to buy. Something else to watch carefully is the fees the platform charges.

RELATED: Top Picks For UK Share Dealing Accounts

For British investors, it’s also worth considering two special share dealing accounts:

• Stocks and Shares ISA – shields your profits from capital gains, dividends, and income taxes, making it the best option for most investors.
• Self-Invested Personal Pension – shields your profits from capital gains and dividends, while deferring income taxes until withdrawals begin. Also provides tax relief on deposits when building wealth, making it a suitable option for investors saving for retirement.

3. Fund Your Account And Start Investing

Deposit money into your account and purchase the fund. Most platforms should allow you to use a lump sum or invest a regular monthly amount to pound-cost average. By using dollar-cost averaging, it can smooth out short-term market volatility.

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.

LSE Index Fund vs S&P 500

LSE index funds are a popular alternative to the S&P 500 in Britain. The main difference lies in geographical exposure. An LSE index fund, such as one tracking the FTSE 100 or FTSE 250, allows investors to invest primarily I the UK’s largest companies.

While these firms are global in nature, many earn significant revenues from overseas and are often heavily tilted towards defensive sectors like energy, financials, consumer staples, and healthcare.

By contrast, as previously mentioned, the S&P 500 represents the 500 largest businesses in the US. It grants investors far better access to fast-growing technology giants. And since this sector has been a top performer, the historical returns of the S&P 500 have been stronger over the long run compared to the FTSE 100 or FTSE 250, albeit at a greater level of volatility.

Many UK investors often choose to invest in both, relying on the S&P 500 to build their wealth and using the FTSE 100 as a balance to offset volatility and gain exposure to the UK market. Holding a mix of the two can improve portfolio diversification while also generating a more substantial passive income stream from dividends, as UK shares typically offer superior yields.

Should I invest in the S&P 500?

If you want a straightforward, low-cost investment that gives you access to some of America’s best companies, then this might be a great pick. The whole index contains companies of different sizes from various industries, which is what you want in a diversified portfolio.

However, although you get some diversification, it is heavily reliant on the US. Many of the companies will operate internationally, but they are still influenced by what is happening in America. What happens with the dollar or politics can really impact the S&P 500.

Because the index is weighted by market capitalisation, most of your investment goes to the biggest companies. This can work against you sometimes, as these large companies have already seen a lot of growth. Meanwhile, the smaller-cap companies can see bigger gains.

Frequently asked questions

Should a beginner invest in the S&P 500?

Yes. Investing in an S&P 500 low-cost index tracker is often considered to be a good investment for beginners. It offers several advantages for novice investors, including:

• Diversification – The index contains 500 of the largest companies listed in the US.
• Strong Past Performance – While not an indicator of future results, the S&P 500 has historically delivered an average annualised return ranging from 7% to 11%.
• Passive Approach – Investors aren’t required to actively manage their portfolio as the index is managed by a professional or automated algorithm.
• Low Fees – Most modern index trackers are managed by computer algorithms, making them a very low-cost approach to investing. Most passive index trackers typically charge a fee that is less than 0.1%.

Can you directly invest in the S&P 500?

No. You cannot directly invest in the S&P 500. Instead, investors have to buy shares of an index fund that specifically tracks and aims to replicate the desired index.

What if I invested $1,000 in the S&P 500 5 years ago?

Over the last five years, the S&P 500 has delivered a total return of 94% as of January 2026. This includes capital gains as well as dividends.

Therefore, if an investor had bought $1,000 worth of a low-cost index tracker, the value of their investment today would be $1,940. However, this is before paying any fund fees or taxes.

The post How to Invest in the S&P 500 from the UK in 2026 appeared first on The Motley Fool UK.

Berkshire’s most recent 13F discloses 49 investments in US equities (investments outside the USA aren’t reported). I’ve been looking at that list to find stocks that I’d like to buy this month.

Apple

First on my list is Berkshire Hathaway’s largest holding. A 22% fall in the price of Apple (NASDAQ:AAPL) shares since the start of the year has caught my attention.

The main thing holding back the stock at the moment is its growth prospects. In the current economic climate, there’s a real concern that iPhone sales, for instance, might struggle.

But I think that a short-term headwind is a long-term opportunity. Since it accounts for only about 18% of the global smartphone market, Apple has room to expand over time. 

At the Berkshire Hathaway Annual Shareholder Meeting, Buffett said he intends to buy the stock below $150 a share in the future. As of today, the shares trade at $141. 

Citigroup

My second Buffett stock to buy in July is Citigroup (NYSE:C). He started buying this one for the Berkshire Hathaway portfolio at the start of the year.

I’ve been steadily accumulating Citigroup shares in my own portfolio too. With the stock falling by 24% since the beginning of January, I plan to buy more shares this month.

The company is in a restructuring process at the moment. The uncertainty around how the business will emerge from the process introduces an element of risk with an investment here.

But I think that the current share price more than justifies the risk. At its recent investor day, the company announced an ambition to achieve 11%-12% returns on tangible equity in the medium term.

The stock currently trades at a price-to-book (P/B) ratio of just over 0.5. If the company can reach its stated target from there, I think that the returns for me as an investor could be huge. 

Berkshire Hathaway

Last on my list of Warren Buffett stocks to buy in July is Berkshire Hathaway itself. In my view, owning the shares is the best way to invest like the Oracle of Omaha.

Since the start of 2022, they’re down 23%. More importantly than that, the share price has recently reached a level that I think is important.

At $268 a share, Berkshire Hathaway stock trades at a P/B ratio of below 1.2. Historically, Buffett has suggested that trading below this level is a sign that it’s materially undervalued.

Nowadays, Buffett thinks that Berkshire’s businesses are worth more than 120% of their collective book value. I therefore think that the current share price is cheap according to his standards.

Of course, he won’t be around forever and that’s a risk to the investment. But I think that the Berkshire Hathaway approach and culture should persist even when he isn’t running the business.

So as well as trying to follow Warren Buffett’s style, I’m also looking at the Berkshire Hathaway portfolio. From there, it comes down to valuation and I think Apple, Citigroup, and Berkshire itself are trading at attractive prices right now.

The post 3 Warren Buffett stocks I’m buying in July appeared first on The Motley Fool UK.

Quality is invaluable

It’s no secret that Warren Buffett only invests in quality stocks that provide good value. Over his decades of investing, he’s reiterated that a good investment has three main factors:

1. A good valuation with room for growth.
2. Strong pricing power and fundamentals.
3. An excellent moat with a margin of safety.

This is evident when analysing his company’s portfolio. The firm has positions in many of the world’s biggest companies. Many of these stocks have one thing in common. They’re market leaders that exhibit quality profit margins and healthy fundamentals.

A buffet of stocks

As the US S&P 500 flirts with bear market territory, the Oracle of Omaha has been going on a shopping spree. Warren Buffett has been buying shares in excellent companies for cheap valuations, having done the same during the 2008 financial crisis. He’s made mistakes in his investing career too, but he learns from them and moves on.

Be fearful when others are greedy, and greedy when others are fearful.

Warren Buffett

The current forward price-to-earnings (P/E) multiple for the S&P 500 stands at 16.6. This is below the five-year average of 18.6, and 10-year average of 16.9. As such, Warren Buffett has increased and even bought positions in several blue-chip stocks. These include PC giant HP, oil behemoths Chevron and Occidental Petroleum, and recently, entertainment conglomerate Paramount Global.

These purchases allow Warren Buffett to dollar cost average, as he continues to buy value stocks on the dip. Berkshire’s move to increase its stake in oil also allowed the firm to capitalise on sky-high oil prices. This has allowed the fund to hedge against the potential slowdown in earnings from its other positions. Consequently, Berkshire Hathaway has outperformed the S&P 500 by almost 20% this year.

Keeping it simple

Warren Buffett has always stressed on keeping investing simple. Buy shares in a great business for less than it’s worth, with managers of the highest integrity and ability. But what is a great business? As hinted at earlier, these are businesses with low debt, high levels of cash, healthy margins, strong growth, and an inelastic good/service. While this may seem simple, companies exhibiting all these traits are difficult to find.

So, despite already having an array of renowned names on his portfolio, the 91-year-old has expressed his regret in not purchasing shares of several top US companies. One is a personal favourite of mine, Alphabet. Although the tech giant came short of earnings expectations recently, he sees plenty of promise in the Google-owning firm. With a 20-1 stock split around the corner, I think Berkshire may add Alphabet to its portfolio. If so, I’d be even more confident in Warren Buffett’s ability to continue beating the stock market.

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Circle of competence

The most important part of Buffett’s strategy involves sticking to what he knows. Alleghany’s insurance operations are closely connected to Berkshire’s existing operations (and Buffett claims to have been following the company for about 60 years) so the business is one that is within what the Oracle of Omaha calls his ‘circle of competence’.

For me too, investing like Warren Buffett means only buying shares in companies whose economics I can understand. For example, if I want to buy Rolls-Royce shares, I need to know that about 41%of its revenues come from civil aviation. I also need to understand what the costs of switching away from Rolls-Royce engines are for a manufacturer. And I need some idea of how the company’s exposure to titanium imported from Russia matters in the current political climate. That is staying within my circle of competence

Intrinsic value

Buying a company below what the Oracle of Omaha calls intrinsic business value is also important. The deal to buy Alleghany represents a price per share of $848. This is significantly higher than the company’s previous price of $677 a share. But Buffett takes the view that the price of the Alleghany deal represents a discount to the company’s intrinsic value. Importantly, the fact that the market was pricing Alleghany shares lower doesn’t influence his view of the company’s intrinsic value. Markets reflect what people are prepared to pay for a company, according to Buffet, not what the company is worth.

Figuring out the intrinsic value of a company is a matter of working out how much cash the company will produce over time. Exactly how to do this varies from business to business. But let’s take BP as an example. Establishing BP’s intrinsic value involves working out how much oil the company will produce, how much it will be able to sell that oil for, and what it will cost to extract it. Having figured this out, I can buy it when the company’s shares trade at a price below this valuation.

Patience

Lastly, Buffett’s Alleghany investment highlights the importance of being patient and waiting for opportunities. The last major Berkshire Hathaway acquisition was around six years ago. To the frustration of some, the company’s cash pile had grown to around $140bn before recent investments in Occidental Petroleum and Alleghany. But patience is an important part of Buffett’s approach to investing.

Being selective is an important part of echoing his approach. This means only taking the best opportunities that are available. If a suitably attractive opportunity isn’t available, then the Oracle of Omaha waits until it is. There will always be another opportunity, but it’s important to be prepared to take it when it comes around.

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