At the 2024 Berkshire Hathaway (NYSE:BRK.B) annual shareholder meeting, Warren Buffett was asked how he’d invest today if he was starting again. And the response was unequivocal.
Despite the success of Apple, the billionaire investor said he’d be looking for value opportunities – smaller companies that others might be overlooking. And I think the UK’s a great place to find these.
What would Buffett do?
Finding an undervalued opportunity is easier in a place where nobody else is looking. When more people are thinking about a stock, it’s less likely they’ve all missed something big.
As Buffett put it: “I would try to know everything about everything small. And I would find something and with a million dollars you could earn 50% a year, but you have to be in love with the subject.”
This isn’t an option for Buffett nowadays, because a 50% return on $1m doesn’t make much of a difference to a firm the size of Berkshire Hathaway. But this isn’t a problem that applies to me.
With UK shares, finding something everyone else is missing in the FTSE 100 or the FTSE 250 is rare (though not impossible). Beyond this though, there are stocks that get a lot less attention.
UK stocks
One example is Crystal Amber Fund (LSE:CRS) – an activist investor firm. The company has a market-cap of £81m, but there are reasons for thinking it’s worth a lot more than this.
Crystal Amber owns a 17% stake in a company called De La Rue. The business provides online and physical authentication solutions and produces banknotes, but this isn’t really the point.
The important bit is that De La Rue has accepted a takeover bid of £300m for its authentication division. And Crystal Amber reckons this could leave the firm with net cash of £140m.
On top of this, the activist investment firm is pressing for the sale of De La Rue’s currency division. It anticipates realising around £150m as a result.
Value
If all of this is correct, the stock looks like a bargain. The sales of De La Rue’s operations could bring in £290m and 17% of that could leave Crystal Amber with just under £50m.
In the context of an £81m market-cap, that’s a lot of cash. And this is before getting on the company’s other investments and what they might be worth.
Of course, there’s always uncertainty. Finding a buyer and achieving the anticipated price for De La Rue’s currency business is by no means guaranteed.
Nonetheless, I think this is the kind of thing Buffett has in mind in terms of opportunities that most people are missing. Investors seeking undervalued stocks should take a closer look.
Opportunities
The downside to Buffett’s approach is that it involves finding lots of these opportunities in order to achieve long-term success. As the value from one is realised, it’s time to find another.
That can be a lot of work, but Buffett’s adamant there are still undervalued stocks in places where most investors aren’t looking. And the rewards from finding them can be terrific.
