Legendary investor Warren Buffett has made billions of dollars with his market-beating investing method. So I’ve taken time to find UK shares that have similarities with those owned by his Berkshire Hathaway firm.
Here’s a top FTSE 100 value stock I think he’d adore.
Telecoms titan
Telecoms is an industry in which Warren Buffett sees enormous investment potential. It’s why his Berkshire Hathaway firm owns shares in Charter Communications and T-Mobile.
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I share his bullish outlook on the telecommunications industry. The world around us is becoming increasingly digitalised, and businesses like this play a critical role in keeping people connected. It’s why research suggests the global telecoms sector will enjoy a healthy compound annual growth rate (CAGR) of 5.4% between now and 2028.
I don’t have an unlimited reserve of cash that I can use to invest. But predictions of robust long-term market growth mean Vodafone (LSE:VOD) shares sit near the top of my shopping list.
The FTSE 100 business is rapidly rolling out 5G and broadband to supercharge its revenues potential over the next decade. The number of European cities where its 5G service was operational leapt to 344 as of September, for example. This was up from 244 a year earlier.
I also like Vodafone shares because of the company’s established position in Africa. It had 188m mobile customers and 56m users of its M-Pesa mobile money service as of September. A blend of swift population and wealth growth in these regions could supercharge consumer numbers from current levels.
Value for money
Vodafone’s share price has dropped a quarter of its value during 2022. This is why I also think Warren Buffett would love the telecoms share today. The UK share now offers terrific value for money.
Investing in undervalued shares has been an important wealth creator for the Sage of Omaha. He famously said that “the best chance to deploy capital is when things are going down”. Buying quality shares at cheap prices can significantly boost one’s returns over the long term.
There’s a variety of measures that suggest Vodafone’s shares offer great value today. Today it trades on a forward price-to-earnings (P/E) ratio of around 11 times. By comparison, the wider Western European telecoms sector trades on a multiple north of 20 times.
Vodafone also trades on a forward price-to-earnings growth (PEG) ratio of 0.8. Any value below one indicates that a stock is undervalued.
The firm’s price-to-book (P/B) ratio is the final measure I’ll use to illustrate its value. This looks at the company’s price taking into account its assets and its liabilities.
At 84.4p per share Vodafone’s P/B ratio sits at just 0.5. Again, any reading below one indicates cheapness.
A top Buffett stock
Critics of Vodafone would suggest its low share price reflects a high risk profile. The company’s operations require vast amounts of cash. And it faces extreme competitive pressures in its key European marketplace. Both of these pose big dangers to profits.
I believe, on balance, Vodafone still has the potential to deliver exceptional long-term returns. I think this Warren Buffett-like stock is a tremendous stock to buy for 2023.
