3 UK Stocks To Tempt Warren Buffett: Unilever plc, Diageo plc And Reckitt Benckiser Group Plc

Unilever plc (LON: ULVR), Diageo plc (LON: DGE) and Reckitt Benckiser Group Plc (LON: RB) could have bright futures and tempt the ’sage of Omaha’

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

 

One of the key things that Warren Buffett is said to look for when investing in a company is a sizeable economic moat. In other words, he is looking for some kind of competitive advantage that allows the company in question to charge higher prices, keep costs at a lower level, or else somehow maintain higher margins than its peers.

Brand Loyalty

Three examples of such companies are Diageo (LSE), Unilever (LSE: ULVR) and Reckitt Benckiser (LSE: RB), with all three stocks commanding a significant amount of brand loyalty from their customers. Indeed, all three companies produce products that can, in theory, be copied by their competitors, and yet they are all able to charge higher prices for their brands and maintain higher margins than competitors as a result.

Should you invest £1,000 in Hsbc Etfs Public Limited Company - Hsbc S&p 500 Ucits Etf right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Hsbc Etfs Public Limited Company - Hsbc S&p 500 Ucits Etf made the list?

See the 6 stocks

Strong Returns

This means that returns to shareholders are very strong, too. In fact, all three companies offer an excellent return on equity (ROE), with Diageo having a ROE of 32%, Unilever’s being 37% and Reckitt Benckiser’s being equally impressive at 28%. These figures show that the companies in question are highly profitable and are maximising the capital invested by investors to produce excellent returns.

Resilience

Furthermore, with demand for consumer goods, such as shampoo and headache tablets, and alcoholic beverages remaining highly resilient during even the most challenging recessions, Diageo, Unilever and Reckitt Benckiser each benefits from relatively stable demand for its products.

Certainly, they are unlikely to see a spike in demand during an upturn, and so may not keep up with their more cyclical index peers during the boom years, but they all offer sustainable, steady growth over the long run. For investors like Warren Buffett, this beats short, sharp bursts of growth hands down.

Valuation

As Warren Buffett declared many years ago, he’d rather buy a great business at a reasonable price than a reasonable business at a great price. So, given their superb brand portfolios and sizeable economic moats, neither Diageo, Unilever, nor Reckitt Benckiser trade at prices that could be deemed cheap.

Indeed, Diageo trades on a price to earnings (P/E) ratio of 18.9, while Unilever and Reckitt Benckiser have P/E ratios of 19.7 and 20 respectively. Although it may seem as though there is little scope for their ratios to rise, they have all been higher at times in the past. So, for any of the three stocks to command a P/E ratio of over 20 would not be a major surprise.

Looking Ahead

Clearly, growth potential for the three companies is centred on emerging markets. With demographics seemingly in their favour and all three companies having invested heavily in building their brands in the developing world, they appear to be well-placed to tap into the mid to high single digit growth rates that are on offer across the emerging world.

As a result of this potential, as well as their wide economic moats, high ROEs, long term resilience, and reasonable prices, Diageo, Unilever and Reckitt Benckiser could tempt Warren Buffett to make a move.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

These FTSE shares may offer some safety as Trump slaps tariffs on trading partners

FTSE shares moved lower on 3 April, after US President Donald Trump introduced hefty tariffs on its trading partners. These…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »