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Is Woolworths Limited a Buffett stock?

Following his investment in Tesco Plc, I doubt that shares of Woolworths Limited (ASX: WOW) would interest Warren Buffett.

What happened with Tesco?

In 2014, Buffett admitted that he made a great mistake buying Tesco, a UK-based supermarket operator. Tesco shares have fallen 60% in 10 years.

Buffett purchased 5% of all Tesco shares before selling at a $444 million loss.

Is Woolworths a Buffett stock?

Although Buffett may feel a little sick when he thinks about Tesco, I doubt Woolworths would make it into a Buffett portfolio today for the following reasons.

Competitive advantage.

One of the key features which Buffett and Charlie Munger look for in the companies they buy is a competitive advantage. This is a feature of a business that makes it resilient under competition.

If you asked someone 10 years ago if Woolworths, Australia’s largest supermarket chain, had a competitive advantage the answer would have been a resounding “yes”. However, with the arrival of Aldi, a price war with Coles and Metcash, and the uncertainty over the arrival of Amazon; Woolworths’ competitive advantage appears to be under immense pressure.

Valuation

Buffett is a long-term value investor, with an eye for quality.

The Woolworths share price had fallen in recent times only to recover to its current level of $26. However, despite the fall, at today’s prices, I think Woolworths shares are fair value.

That is, they are not a standout buy or a sell, in my book.

Therefore, I doubt Buffett would be in a rush to buy Woolworths shares today.

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Motley Fool Contributor Owen Raszkiewicz owns Amazon shares. You can follow him on Twitter @OwenRask.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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