Buy the Buffett way with these 4 income stocks

Hunt for great investment opportunities like “The Oracle of Omaha”

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What many investors respect about Warren Buffett is his integrity in choosing companies based on sound financials and principles. He’s not one to “take a flyer” on a stock. If he can’t justify it with his investment logic, he passes it up.

He has his checklist full of favourites like strong brand name, high profit margin, high return on equity and low manageable debt to name a few. As for taking big chances that look like rewarding opportunities, he once wrote:

A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable, problem…. Overall, however, we’ve done better by avoiding dragons than by slaying them.

In the late 1960s when he was managing the investment money of his business partners, the US stock market was rising higher and higher, but he didn’t feel he needed to be “in the market” to make some easy cash.

He instead liquidated the partnership fund and returned the money to investors because he couldn’t find anything that matched his value investing style. The market sold off heavily shortly afterwards, so his integrity helped him dodge a bear market bullet.

Here are four stocks that have some of the hallmarks of what he might call a marvellous business.

1) SEEK Limited (ASX: SEK) has very strong brand name as the leading job search website. The company estimates it is involved in about 25% of formal job placements in Australia. It has high revenue and earnings growth rates supported by wide profit margins.

2) Brambles Limited (ASX: BXB) is a global supply-chain logistics company known by its CHEP brand of pallets and containers that so many businesses, warehouses and transport companies use. It keeps growing bigger with its steady rate of acquisitions around the world.

3) Invocare Limited (ASX: IVC) operates a network of funeral homes, cemeteries and crematoria slowly growing across Australia. It buys out competitors who mostly are small, private owners in an industry that new entrants aren’t attracted to. The business can grow right along with the average death rate and population growth.

4) Coca-Cola Amatil Ltd (ASX: CCL) bottles and distributes Coca-Cola and other beverages in Australia. Recently the retail market has been challenging and company earnings are expected to drop about 15%. This short-term setback may be the very example of a great investment opportunity in the quote above. Buy into a temporary, solvable problem and reap the rewards later.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »