Warren Buffett has a very simple investment strategy. He simply buys good companies and then holds them for a long time.
One thing that stands out about Buffett’s strategy, though, is that he tends to favour some sectors. Two sectors he likes, in particular, are Financials and Consumer Goods.
With that in mind, here’s a look at two Warren Buffett-style FTSE 100 companies that operate in these sectors.
World’s greatest investor loves insurance firms
One area of the Financials sector that Buffett clearly likes is insurance. His company, Berkshire Hathaway, fully owns a number of major US insurers including GEICO and General Reinsurance Corporation. It also has stakes in others.
Now, the FTSE 100 index contains a number of insurance companies. But the one that has the most Warren Buffett attributes, to my mind, is Prudential (LSE: PRU).
For a start, Prudential has a competitive advantage in the form of its brand and logo. As a result of its brand, Prudential enjoys an impressive awareness in Asia (where it’s predominantly focused now) that often surpasses local competitors and other foreign players. It is recognised as one of the most trusted brands in Asia.
Secondly, Prudential is a very profitable company. Last year, the company generated an operating return on shareholders’ funds of 24%. Buffett would be impressed with that, I think.
Finally, Prudential has a great track record when it comes to generating shareholder wealth. The FTSE 100 company has put together an impressive dividend track record. Furthermore, over the last decade, it has lifted its dividend significantly. This year, it has continued to pay dividends while other FTSE 100 companies have suspended or cancelled their payouts.
Prudential shares currently trade on a forward-looking P/E ratio of just nine. I think Warren Buffett would be attracted to that kind of valuation. We all know Buffett loves a bargain.
Buffett tried to buy this FTSE 100 stock
Another FTSE 100 stock that ticks a lot of Warren Buffett boxes is Unilever (LSE: ULVR). It’s a consumer goods company that owns a world-class portfolio of brands. Its products are sold in hundreds of countries around the world and used by billions of people every day.
Like Prudential, Unilever has a competitive advantage in the form of its brands. Its well-known brands, which include Dove, Lipton, and Domestos, are trusted by many. They tend to be purchased by consumers irrespective of economic conditions.
Unilever is also a very profitable company. Return on capital employed (ROCE) has averaged 24% over the last five years. Meanwhile, the company has a fantastic long-term record when it comes to generating shareholder wealth. Since 1952, Unilever has compounded its dividends by around 8% per year.
Unilever shares currently trade on a forward-looking P/E ratio of about 20. That’s not high for a company with such a fantastic track record.
Warren Buffett actually tried to buy Unilever a few years back near the 4,000p mark. Given the company’s high-quality attributes, I wouldn’t be surprised if he tries to buy the FTSE 100 company again at some stage in the future.
The post Two Warren Buffett-style FTSE 100 shares I’d buy today appeared first on The Motley Fool UK.
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Edward Sheldon owns shares in Prudential and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Prudential. 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.
Motley Fool UK 2020