US billionaire investor Warren Buffett has a well-deserved reputation for picking long-term winners. In this piece, I’m going to suggest three UK shares I think the Oracle of Omaha might buy today.
Buffett’s investments often follow one of a handful of themes. Each of the stocks I’ve chosen plays to one of these long-running themes. I think they could all be winners from current levels.
A cheap insurer
One of the first investments made by Buffett’s group, Berkshire Hathaway, was US motor insurer Geico. Today, Berkshire owns stakes in several large US insurers.
I believe insurers are among the most attractively valued UK shares today. My top pick of these is FTSE 100 firm Aviva (LSE: AV). This group’s diverse business includes life insurance and general insurance, such as travel and motor cover. Aviva also operates in a number of markets outside the UK, including Canada, Europe, and parts of Asia.
New boss Amanda Blanc has pledged to streamline the business and improve returns. In the meantime, I think the shares offer terrific value. As I write, the Aviva share price is just under 300p. At this level, this UK share trades at a 15% discount to its net asset value of 473p per share.
Aviva’s low growth rate has discouraged investors. But cash generation remains good and dividend payments have now restarted. I think shareholders can expect a dividend yield of 6% or more from current levels. I see this as a classic long-term Buffett buy.
I’ve bought this fast-growing UK share
Another popular theme for Buffett’s investments is everyday retail. He owns stakes in US supermarket Kroger and wholesaler Costco, as well as consumer goods companies including Kraft Heinz.
Buffett might into one of the big UK supermarkets, but I think he might be more tempted by fast-growing discount retailer B&M European Value Retail (LSE: BME). B&M keeps shoppers coming back with a core range of popular products at keen prices, mixed with frequent new promotions. I think it’s a winning formula that still has room to grow.
Sales at B&M rose by 16.5% to £3.8bn last year and this UK share has risen by 50% over the last 12 months. The group traded well through lockdown and management recently increased its profit guidance for the first half of the year.
B&M shares currently trade on 16 times forecast earnings, with a well-covered dividend yield of 2.1%. I rate them as a buy.
A television bargain?
Another significant theme in Berkshire Hathaway’s stock portfolio is television. The group owns stakes in a number of cable television companies and other media firms. The UK television market is a little different, but I think FTSE 100 group ITV (LSE: ITV) offers the kind of cash-generating value that might tempt Buffett.
ITV stock looks battered at the moment, thanks to the downturn in television advertising spending. Competition from streaming services is certainly tough, but it’s worth remembering ITV’s Studio business produces programmes for many of these online services.
As I’ve explained before, I think ITV’s programme-making business alone could be valuable enough to justify the price of this UK share. In my view, the broadcast business is almost being thrown in for free. I continue to think ITV is just too cheap, and remain a long-term buyer.