The ASX is starting the new financial year on a whimper and prayer with the S&P/ASX 200 (Index:^AXJO)(ASX:XJO) slipping 0.6% into the red after lunch trade today. You won't be alone if you are feeling a little anxious about where to put your capital in FY18 given that the outlook for the two biggest sectors in our market – namely banking and mining – is looking sombre at best.
Going back to fundamentals that have proven to work over the long-term is often a good place to fall back to during times of uncertainty. There's probably no better time to ask yourself what stocks would Warren Buffett buy in Australia, particularly since it is about two years ago that Berkshire Hathaway made its first investment in an ASX-listed company.
That company was Insurance Australia Group Ltd (ASX: IAG) and his 3.7% stake has turned out to be an astute buy as IAG's share price is up nearly 20% before dividends and franking over the period, compared with the less than 3% gain by the S&P/ASX 200 Index.
If you wanted some proof that using Warren Buffett's value investment strategy will pay off if it was more broadly applied to the ASX, then Credit Suisse has done the hard yards for you.
The broker has created a portfolio of ASX stocks based on its investment principles of buying solid companies at reasonable valuations and this basket of stocks has performed very strongly in FY17.
In absolute terms, Credit Suisse's Buffett stocks have generated a return of 26%. That's not only better than our top 200 stock benchmark, but it also soundly beat Berkshire's performance, which stands at around 17%.
Stocks in the broker's portfolio (besides IAG of course) included cement supplier Adelaide Brighton Ltd. (ASX: ABC), fuel retailer Caltex Australia Limited (ASX: CTX), travel agent Flight Centre Travel Group Ltd (ASX: FLT) and fund manager Perpetual Limited (ASX: PPT).
The question is which five stocks will make the cut for the special portfolio in FY18?
Credit Suisse has kept IAG, Adelaide Brighton and Caltex in the portfolio but has replaced the other two with investment group IOOF Holdings Limited (ASX: IFL) and one of my favourite property developers Lendlease Group (ASX: LLC).
The broker notes that these stocks trade on an average price-earnings (P/E) multiple of 16.6 times, which is in line with the market, but the stocks are forecast to grow earning per share by 18% over the next two years – or nine percentage points faster than the market.
These stocks could well complement a portfolio of solid dividend-paying stocks. If you'd like to know which other high-yield stocks are worth buying for the new financial year, click on the link below.
