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Billionaire investor Warren Buffett doesn't have much exposure to the UK stock market. And you really don't need to given the incredible investment opportunities that currently exist in the US market.
However, there are plenty of Buffett-type stocks in the UK's FTSE 100 index. Here's a look at two that I have in my portfolio that I think are worth a look right now.
A great generator of wealth
First is right movement (LSE: RMV). It operates the largest property portal in the United Kingdom.
I think Rightmove would tick some boxes for Buffett. You like to invest in high quality businesses and this company has a strong brand (and therefore a wide moat), a high return on capital (profitability level) and a brilliant long-term track record of generating wealth for shareholders.
At the current share price, I think there's quite a bit of value on offer here. And clearly I'm not the only one who has this opinion. Last month, Australian rival REA Group tried to buy the British company. Unfortunately, the two companies could not agree on the price.
Looking ahead, I expect Rightmove's share price to rise as the company's revenue and profits grow. The valuation looks very reasonable today (the forward price-to-earnings (P/E) ratio is just 21), so I see plenty of room for gains. It's worth noting that analysts at Berenberg have a price target of 775p. That's about 25% more than the current share price.
In terms of risks, one to keep in mind is the fact that competition in the UK property search space is increasing. Today, Rightmove is up against OnTheMarket (which has just been bought by a large US company), Zoopla, Your Move and others.
However, I like the risk/reward proposition at current levels. In my opinion, this internet company is undervalued right now.
out of favor
Insurance is one of Buffett's favorite sectors and one stock I like today in this sector is Prudential (LSE: PRU). It is currently focused on high-growth Asian and African markets.
Now, Buffett likes to buy stocks when they're out of favor. And this action definitely fits perfectly here. As a result of China's recent economic problems, its share price has plummeted. Over the last year, it has decreased more than 20%.
However, I believe there is potential for a recovery in the not-too-distant future. Right now, China is aggressively injecting stimulus into its economy. This should improve Prudential's trading conditions. And in the long term, the Asian and African markets – which are largely untapped when it comes to insurance and savings accounts – should offer plenty of growth for the company.
Another thing worth mentioning here is that the company is buying back many of its own shares. This should boost earnings per share over time (and the share price).
Of course, if the Chinese economy deteriorates further, the stock price rebound will be delayed. However, from a long-term perspective (Buffett likes to hold stocks for decades), I think this stock will do well.
Currently, the P/E ratio here is nine, so the stock is cheap.
