Buy like Buffett with these 3 blue-chip ASX stocks
By Tim McArthur - May 30, 2014
Warren Buffett through his annual letters to Berkshire Hathaway’s shareholders has over the decades counselled on many aspects of investing. The letters are a treasure trove of information and the only true way to soak up all of Buffett’s generous advice is to spend the hours – enjoyable and enlightening as they are – reading the letters from start to finish.
One important point for investors who attempt to follow in Buffett’s footsteps is to remember that there are many ways to apply his thinking. For example, just because a company such as SEEK Limited (ASX: SEK) may be outside Buffett’s personal circle of competence, that doesn’t mean it’s not inside your circle of competence and potentially a Buffett-type stock.
A second important point to remember is that an investor’s opportunity set at any one point in time will be unique. The stocks which Buffett a) understood and b) had the opportunity to buy at an attractive price have been and gone. Each investor’s individual situation will mean a different opportunity set is present.
With that in mind here are 3 blue-chip stocks which arguably are “Buffett-type” businesses.
Ansell Limited (ASX: ANN) – Buffett’s always been a fan of fast moving consumer goods (FMCG) businesses. One of the beauties of a FMCG is the recurring revenues it can generate through customer loyalty. Ansell is arguably the best ASX-listed FMCG stock available which not only has market-leading positions domestically, but also increasingly in select global markets as well.
Aurizon Holdings Ltd (ASX: AZJ) – It was not that long ago that Buffett went and bought rail freight company BNSF. One of the attractions was the long and predictable streams of earnings which these types of businesses can possess. Aurizon with its long-term haulage contracts and entrenched market positions looks to possess similar qualities to BNSF.
Woolworths Limited (ASX: WOW) – Buffett is on record as stating that one of his biggest investment misses was not investing in retailing giant WalMart Stores, Inc. It’s an understandable statement when you look at the returns from WalMart stock over the past 40 years. While Woolworths doesn’t have the growth profile of WalMart, it is similar in certain respects including its market leadership position and market-beating margins.
Buffett loves businesses that produce mountains of cash. You can imagine he'd get pretty excited by a grossed-up yield of 7%... plus double-digit profit growth!
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
Warren Buffett through his annual letters to Berkshire Hathaway?s shareholders has over the decades counselled on many aspects of investing. The letters are a treasure trove of information and the only true way to soak up all of Buffett?s generous advice is to spend the hours – enjoyable and enlightening as they are – reading the letters from start to finish.
One important point for investors who attempt to follow in Buffett?s footsteps is to remember that there are many ways to apply his thinking. For example, just because a company such as SEEK Limited (ASX: SEK) may be outside…