Warren Buffett is considered to be one of the greatest investors of all time. He’s built a multi-billion dollar fortune by investing in high-quality, established businesses that throw off a lot of cash.
These businesses are few and far between, but there are at least two companies in the FTSE 100 he could be interested in buying.
Buffett-style stocks Buffett has an extensive portfolio of financial and banking stocks. That’s why he might be interested in buying FTSE 100 income champion Lloyds (LSE: LLOY). The billionaire likes banks that have a significant market share. As the UK’s largest mortgage lender, Lloyds ticks this box.
He also likes highly profitable banks. Lloyds meets this criterion. The group’s return-on-tangible equity (a key measure of banking profitability) was in the mid-teens last year. This implies the company is one of the most profitable banks in Europe.
Management has been returning plenty of its cash to shareholders as well. Last year, the group paid out 3.4p per share in dividends. A return to this level would give the stock a dividend yield of 11% at current prices. This sort of cash return would certainly attract Buffett’s attention.
Lloyds is also well capitalised. The lender passed the Bank of England’s recent set of stress tests with flying colours.
The final reason why Buffett might be interested in Lloyds is the group’s valuation. It’s currently dealing at a price-to-book (P/B) ratio of 0.5. That implies the stock could be worth 100% more than its current price over the long run.
Coca-Cola (NYSE:KO) HBC AG Buffett may also be interested in buying Coca-Cola HBC AG (LSE: CCH). This stock isn’t as attractive from a valuation perspective as Lloyds, but it has many other desirable qualities.
For a start, the business is one of the largest bottlers of Coca-Cola in the world. Buffett knows how profitable this business can be. After all, he’s one of Coca-Cola’s largest shareholders and has been for many decades. Coca-Cola HBC is a way for UK investors to invest in the growth of this American soft drinks champion.
Like Lloyds, Coca-Cola HBC is also a dividend star. Last year, the stock supported a dividend yield of nearly 3%. The payout may drop in the near, term due to the uncertainty brought about by the coronavirus crisis, but this is likely to be temporary. City analysts expect it to return to historical levels in 2021.
The company also has an excellent growth track record. Through a combination of organic growth and growth through acquisitions, earnings per share have grown at a compound annual rate of 11% over the past six years. That’s the sort of growth Buffett would be happy to pay a premium to buy.
As such, it might be worth considering Coca-Cola HBC as a Buffett-style investment for your portfolio today.
The post 2 FTSE 100 stocks I think Warren Buffett would buy appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Lloyds Banking Group (LON:LLOY). 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.
Motley Fool UK 2020
First published on The Motley Fool
