Warren Buffett is arguably the best-known individual in the investment world. His shrewd stock picking via his company Berkshire Hathaway over several decades make him a worthy person to be so prominent. In order to try and replicate his success this side of the pond, here are some stocks that I think could get me rolling.
Finding value shares
Among Buffett’s big focus areas are value stocks. These are companies that he believes are currently undervalued when he considers what the stock could be worth in a decade or more. For example, in the latest earnings report, Berkshire Hathaway declared a holding worth £2.4bn in Citigroup. The American bank has been in a rut for years. The share price has trailed other competitors in the US such as JP Morgan.
As a comparison, I’ve bought Barclays (LSE:BARC) shares. I feel this is a similar case to what Buffett is thinking with Citigroup. The Barclays price-to-earnings (P/E) ratio is just 6.61, well below the fair value benchmark of 10 that I use. Further, the bank is actively focusing on cost-cutting and becoming more efficient.
In a February update, the CEO commented that the bank would become “simpler, better and more balanced”. I believe that over the course of the coming couple of years, the share price should rebound as the £2bn worth of cost cuts by 2026 filter down to higher profits.
Of course, I am a little concerned that if interest rates do get cut this year, they’ll negatively impact earnings for the bank. Yet (like Buffett), if I look at the long term here, I don’t see this being a material problem years down the line and I already own the stock.
Don’t forget about growth
Another area where Buffett has made a name from recently is tech growth stocks. After all, his largest holding by some distance over the past year has been Apple. This shows me that even with the strong performance recently, tech stocks could still provide me with good profits going forward.
To try and replicate this, I’m considering buying Wise (LSE:WISE). This UK FinTech firm has seen the share price jump 57% over the past year. Even with this, a trading update put out yesterday (16 April) showed that active customers grew by 29% year on year. Some 60% of business users are engaging with the firm for multiple features.
Given the growth prospects of cross-selling different products and features, I think the stock could continue to outperform.
I do need to watch out for the lofty valuation. In contrast to Barclays, the P/E ratio for Wise is 79! This does make my eyes water, but I know that future earnings are expected to jump significantly. If this is the case, the ratio should eventually come down to a more reasonable level.
By trying to mimic Buffett with his investment thinking, I think I can hopefully look to make shrewd stock picks and boost my profits.
