There are three steps to investing like Warren Buffett – which is a pretty good approach to take. The first is finding the right stocks to buy, the second is buying them at the right prices, and the third is leaving them to do their thing.
So with a view to buying in May and then going away, I’ve got two stocks on my radar. One is from the UK and the other is from the US.
Forterra
Top of my list of shares to buy in May is Forterra (LSE:FORT). At a price-to-earnings (P/E) ratio of around seven, I think the stock looks cheap at today’s prices.
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In the short term, it’s worth noting there’s a 10.1p dividend coming up in July. At today’s prices, that’s an instant return of 5.4%.
I’m not advocating for investors buying the stock simply because of the short-term dividend (which is paid out of the company’s profits, after all). But it indicates the business is trading at a decent price.
The long-term prospects for the company also look good to me. The UK brick market is has a structural supply shortage, which is the main reason I think the stock is a good investment at the moment.
The company has just started to take on some debt, from being net cash positive. That brings risk and it’s something investors will want to be aware of – especially with the UK property market slowing at the moment.
Ultimately, though, I think the equation is pretty simple. I’d like to buy shares in any business where demand looks set to outstrip supply for the foreseeable future. And if I can buy them at a P/E ratio of seven, so much the better.
Alphabet
Over in the US, I’m looking at Alphabet (NASDAQ:GOOG) as a stock to buy this month. I like buying shares when the price reflects a pessimistic outlook and this seems to be the case with Google’s parent company right now.
There are good reasons for this – the business is facing a number of genuine headwinds. The threat of ChatGPT, a difficult macroeconomic environment, and constant antitrust attention are all risks shareholders face.
Despite this, I think there’s a lot going for the business. Android has a dominant market share when it comes to smartphones, digital ad spending looks set to increase in future, and the company has strong cash generation.
Right now, it looks to me as though investors are focusing on income stocks. Alphabet doesn’t pay a dividend, so it’s fallen out of favour with the market lately, but I think investors are missing a trick here.
The company has a lot of cash on its balance sheet, putting it in a good position to repurchase shares. This is something its been doing consistently over the last five years.
Furthermore, Alphabet’s low capital requirements should allow it to generate a lot more cash in the future. With decent long-term prospects, I’m looking to buy the stock now, while investors are looking elsewhere.
