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Billionaire investor Warren Buffett doesn’t have much exposure to the UK stock market. And he doesn’t really need to given the incredible investment opportunities in the US market today.
However, there are a lot of Buffett-type stocks in the UK’s FTSE 100 index. Here’s a look at two I own in my portfolio that I feel are worth a look right now.
A great wealth generator
First up is Rightmove (LSE: RMV). It operates the UK’s largest property portal.
Rightmove would tick quite a few boxes for Buffett, I feel. He likes to invest in high-quality businesses and this company has a strong brand (and therefore a wide moat), a high return on capital (level of profitability), and a brilliant long-term track record when it comes to generating wealth for shareholders.
At today’s share price, I think there’s a fair bit of value on offer here. And I’m clearly not the only one with this view. Last month, Australian rival REA Group tried to buy the British company. Unfortunately, the two businesses couldn’t agree on a price.
Looking ahead, I expect Rightmove’s share price to climb as the company’s revenues and earnings move higher. The valuation looks very reasonable today (the forward-looking price-to-earnings (P/E) ratio is just 21) so I see plenty of scope for gains. It’s worth noting that analysts at Berenberg have a price target of 775p. That’s about 25% higher than the current share price.
In terms of risks, one to be aware of is the fact that competition in the UK property search space is rising. Today, Rightmove’s up against OnTheMarket (which just got bought by a large US company), Zoopla, Your Move, and others.
I like the risk/reward proposition at current levels however. To my mind, this internet company’s undervalued right now.
Out of favour
Insurance is one of Buffett’s favourite sectors and a stock I like in this sector today is Prudential (LSE: PRU). It’s focused on the high-growth Asian and African markets these days.
Now, Buffett likes to buy stocks when they’re out of favour. And this stock definitely fits the bill here. As a result of China’s recent economic woes, its share price has tanked. Over the last year, it has declined by more than 20%.
I think there’s potential for a rebound in the not-too-distant future however. Right now, China is aggressively pumping stimulus into its economy. This should improve business conditions for Prudential. And in the long run, markets across Asia and Africa – which are largely untapped when it comes to insurance and savings accounts – should offer plenty of growth for the company.
One other thing worth mentioning here is that the company’s buying back a lot of its own shares. This should boost earnings per share over time (and the share price).
Of course, if the Chinese economy deteriorates further, a rebound in the share price is going to be delayed. Taking a long-term view (Buffett likes to hold stocks for decades) however, I think this stock will do well.
Currently, the P/E ratio here’s nine, so the stock’s cheap.
