2 High-return Stocks From My Buffett Screen

28th Feb '23 by Roland Head

9 comments 3199 reads

To follow up on my Warren Buffett-style stock screen from last week, I thought it would be interesting to take a look at some of the companies that appeared in the screen results.

The two stocks I’ve chosen have some characteristics in common, but they’re both also quite distinctive businesses. I think it’s possible that if Buffett was a UK small/mid-cap investor, he might be interested in both of them.

As always, the shares I’m going to discuss are only ideas for further research, not stock recommendations.

You can see (and duplicate) my Warren Buffett screen here.

Note: As I mentioned in last week’s piece, the construction of the screen effectively excludes banks. US banking stocks form a sizable part of Buffett’s own portfolio. I think that some UK banking shares also look attractive for long-term investors at the moment – this is a subject I hope to revisit in the coming weeks.

James Latham (LON:LTHM)

What it does: James Latham (LON:LTHM) is one of the UK’s leading distributors of timber, panels and decorative surfaces. It’s a family-run business that’s been importing timber into the UK since 1757.

Ownership remains heavily concentrated in family hands. Two members of the current board are Latham family members, including chairman Nick Latham:

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Does Buffett own anything similar? Based on Berkshire Hathaway’s reported equity holdings on 30 September 2022, Buffett has substantial equity holdings in at least two US building materials businesses, Floor & Decor Holdings (NYQ:FND) and Louisiana-Pacific (NYQ:LPX).

Stock Review: James Latham is an AIM-listed small-cap, with a market cap of £266m. However, the company has a long record of excellent financial performance. This has been reflected in excellent shareholder returns over time – the stock has 16-bagged over the last 20 years:

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Lathams also did very well during the pandemic, benefiting from surging demand for home improvement and building materials.

The shares qualify for eight guru screens at the time of writing. They’re also well-regarded by Stockopedia’s algorithms, with Super Stock status and a high StockRank:

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LNbQba9Q6nlcRJ142ffNfa_WI1dVKqQ41vsjaRcrc_AX_k8T7yHIEXJhDn93xHb8zKTeGaI-ycCQdAiLaFx4FGYMMtXcAV9dnS2fIKGxolAsCTvXG04d0mGF3SzZayEgybtzQyjBGr89teVOR4Sb4lc

Profits are expected…

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Silver Moon

28th Feb '23

Always considered buying James Latham (LON:LTHM) but never got round to it, but Computacenter (LON:CCC) I do hold and am happy with it.

bohenie

Great report - Thanks Roland - I hold both these largely from monitoring them here. They both have sensible PE and pay a reasonable dividend. Agree anything could affect James Latham (LON:LTHM) but there is the added bonus that they are eligible for IHT relief.

Rusty2

I have looked at Computacenter (LON:CCC) in the past but was put off by the low margins, I din't usually invest in stocks that are under 5%.

I do have a small holding in James Latham (LON:LTHM) , never grow because of recession fears, I note timber prices have dropped back recently, which should help them.

sharw

Like Rusty2 I have looked at Computacenter (LON:CCC) but was put off by the low margin. I did, however invest in Softcat (LON:SCT) when I noticed that K A-L's Buffettology fund had bought in. They are very similar companies in what they do. Both companies qualify for the 'Buffettology-esque Historical Growth Screen' so why not yours? The answer:

Softcat passes 9 out of 11 of this checklist's rules:

peterthegreat

Like sharw, I am a follower of Keith Ashworth-Lord and those considering Computacenter might also like to have a look at Bytes Technology which is one of KAL's holdings. I am also attracted to Bytes because the NHS is a significant customer and I would expect increased sales here if the polls are right and Labour gets in at the next election.

Thanks for the article Roland. I think an additional reason why James Latham did well during the pandemic/logistics crisis was that its size and well-established purchasing and distribution network allowed it to maintain stocks when other companies were running out. I also think that wood engineering techniques (including techniques involving adhesives) are expanding its structural uses in buildings. My guess is that the sustainability of wood must also be creating a tailwind for the company where it competes with materials which need more energy input.

Samsgrandad

4th Mar '23

Interesting article Roland, you mentioned HP. I used to work for them 20 yrs ago so I've not kept up to date with their US listing but last I remember they split the company into HP and HPE. HP do the pc and printer business and HPE the large scale enterprise business.

epo001

7th Mar '23

Before that they had spun off Agilent. I worked for Agilent in the late 90s and still have my employee bonus shares.

BnB

Before that they had spun off Agilent. I worked for Agilent in the late 90s and still have my employee bonus shares.

I have an outsized holding. Expensive, but defensive, quality growth is never cheap.

2 high-return stocks from my Buffett screen

James Latham (LON:LTHM)

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Roland Head

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