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In 2024 Berkshire Hathaway (NYSE:BRK.B) annual shareholder meeting, Warren Buffett was asked how he would invest today if he were starting over. And the answer was not clear.
Despite the success of an applethe venture capitalist said he would look for important opportunities – small companies that others might overlook. And I think the UK is a great place to find these.
What would Buffett do?
Finding an insignificant opportunity is easy in a place where no one is looking. The more people think about a stock, the less likely they will all miss something big.
As Buffett puts it: “I would try to know everything about every little thing. And I can find something and with a million dollars you can earn 50% a year, but you have to like this article. “
This is not an option for Buffett today, because a 50% return on $1m doesn’t make much difference in a company the size of Berkshire Hathaway. But this is not a problem that applies to me.
With UK stocks, there’s something for everyone FTSE 100 or i FTSE 250 it’s rare (though not impossible). Apart from this, there are stocks that receive very little attention.
UK stocks
Another example is this Crystal Amber Fund (LSE:CRS) – an activist investment firm. The company has a market capitalization of £81m, but there are reasons to think it is worth much more than this.
Crystal Amber has a 17% stake in a company called De La Rue. The business offers online and physical authentication solutions and produces notes, but this is not really the point.
The bottom line is that De La Rue accepted a £300m takeover bid in the confirmation phase. And Crystal Amber reckons this could leave the company with £140m in cash.
On top of this, the activist investment firm pushed for the sale of De La Rue’s cash division. It expects to see around £150m as a result.
Price
If all this is correct, the stock looks like a bargain. The sale of De La Rue’s operations could bring in £290m and 17% of that could leave Crystal Amber with less than £50m.
In a market capitalization of £81m, that’s a lot of money. And this is before getting into the company’s other investments and what they may be worth.
Of course, there is always uncertainty. Finding a buyer and achieving the expected price for De La Rue’s financial business is by no means guaranteed.
Anyway, I think this is the kind of thing Buffett has in mind about opportunities that many people are missing. Investors looking for undervalued stocks should take a closer look.
Opportunities
The downside to Buffett’s approach is that it involves finding a number of these opportunities to achieve long-term success. As value from one is found, it’s time to find another.
That can be a lot of work, but Buffett insists there are still undervalued stocks in areas where most investors don’t look. And the rewards for finding them can be great.
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