Here’s how Warren Buffett might approach the FTSE 100 index

Are there any FTSE 100 (INDEXFTSE: UKX) stocks that Warren Buffett would buy? Let’s take a look.

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.

Recently, I wrote an article that examined what legendary investor Warren Buffett looks for in a stock. I noted that he focuses on high-quality companies, likes to see a strong return on equity (ROE), and also prefers companies with low debt. These attributes have helped him generate incredible stock market returns and consistently smash the S&P 500 index for over 50 years now.

Today, I’m going to take Buffett’s stock selection criteria and apply the methodology to the FTSE 100 index. Are there any UK stocks that Buffett might be interested in right now? Let’s take a look.

Warren Buffett stock screen

To screen for Buffett-type stocks, I’m using investment platform Stockopedia’s screen function and the stock selection criteria I have entered is as follows:

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

  • FTSE 100 stocks
  • Return on equity % 5-year average > 15%
  • Long-term debt/equity % < 50%
  • Market-cap > £5bn

Essentially, this stock screen is designed to identify large companies with low debt levels that are consistently generating a healthy return on equity.

Of course, it’s important to realise that this is a fairly simplistic screen that ignores plenty of other things that investors should always consider, such as revenue and earnings growth, plus dividends and valuation ratios. But let’s see what names this simple screen throws up.

High-quality FTSE 100 stocks

The screen generates 18 FTSE 100 names, which are sorted by market capitalisation and shown below:

Shire
Ferguson
Smith & Nephew
Hargreaves Lansdown
3i
InterContinental Hotels
Schroders
Whitbread
Burberry
Persimmon
Johnson Matthey
Croda International
Segro
St. James’s Place
Paddy Power Betfair
Taylor Wimpey
Easyjet
Halma

So, would Buffett actually buy these stocks?

Top Buffett picks

Naturally, it would be unlikely that he would be interested in all of these stocks. A stock screen simply provides a starting place in investment analysis. However, there are a few names on that list that I believe he could be interested in.

One is investment broker Hargreaves Lansdown, which is a top holding for Britain’s own Warren Buffett, Nick Train. From a Buffett-style investing point of view, Hargreaves ticks a lot of boxes. For example, the company has a very strong position and an excellent reputation in the UK wealth management market, and is well placed to continue growing going forward. Debt is low and return on equity is outstanding, averaging 72% over five years. The only downside is the stock’s valuation. Trading on a forward P/E of 39.2, it’s expensive. Buffett would most likely wait for a more attractive entry point.

Hip replacement specialist Smith & Nephew is another stock that Buffett might take a closer look at, in my opinion. Again, it’s a leader in its field with a strong market position. The group has an excellent track record of generating earnings and dividend growth.

Budget airline easyJet could also fit Buffett’s bill, as the legendary investor currently holds a number of airlines within his portfolio. Trading on a forward P/E of just 11.8, the stock appears to offer value right now.

So there you have it, a look at how Warren Buffett might approach the FTSE 100. While this screen is simplistic, looking for stocks with high ROE and low debt won’t do you any harm. The approach has certainly worked wonders for Mr B over the years.

This AI stock is attracting investors like Michael Bloomberg and Peter Thiel…

Why are these legendary investors, already wealthy beyond imagination, drawn to this opportunity? The allure lies in more than just potential returns; it's a vote of confidence in a company poised for long-term success.

Imagine a revolutionary AI company that's not just participating in the digital media landscape but reshaping it entirely.

Trusted by giants like Amazon, Disney, and Netflix, the company reported nearly £637 million in revenue last year, marking a robust 7.8% growth over three years. Its impressive market reach and spirit of innovation are just the beginning of its story.

Best of all, we’re thrilled to offer you an exclusive glimpse into this game-changing AI investment, absolutely free.

Get your free AI stock pick

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.

Edward Sheldon owns shares in Schroders and St. James's Place. The Motley Fool UK has recommended Burberry, Hargreaves Lansdown, InterContinental Hotels Group, Paddy Power Betfair, and Shire. 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.

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

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

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »