It has been a challenging few weeks in the stock market. The FTSE 100 index of leading UK shares has fallen by 7% over the past month alone.
As a believer in long-term investing, I am more interested in the one-year track record. That shows the FTSE 100 index sliding a more modest 4%.
Do falling share prices of blue-chip companies offer a buying opportunity for my portfolio? I think they do and plan to add more FTSE 100 shares to my portfolio in coming weeks. Here is why.
Value on sale
Some of the companies that have seen their shares fall now offer me what I think is long-term value.
Take, as an example, DCC. Its business faces a number of headwinds that could hurt sales and profits. It sells a lot of gas to homes and businesses. Price swings in the gas market could hurt profits. The company also reports in euros while being listed in London, so there are currency risks to the firm’s valuation.
But DCC has proven over decades that it has a strong business with continued potential for growth. The company has raised its dividend annually for 27 years. During that time, the compound average dividend growth rate has been a very impressive 14%.
Yet the DCC share price today is 27% lower than a year ago. That means the dividend yield is now a tasty 3.8%.
Dividends are never guaranteed. However, I expect DCC management to keep trying to increase the annual dividend. So if I take advantage of the share price fall at this FTSE 100 company, my prospective yield may be even higher.
FTSE 100 bargains
In fact, DCC is only one example of many possible bargains for my portfolio in the FTSE 100 right now.
Retailer JD Sports has lost over half its value in the past year. Yet the business expects this year’s results to match last year’s record performance.
Shares in telecom giant Vodafone are 12% cheaper than a year ago. But I think demand for its services will be fairly resilient even in a recession. There is a risk its high debt load could threaten dividends. Meanwhile, the yield is 7.4%.
In fact, the list of FTSE 100 firms trading for less than before goes on and on.
Long-term approach to investing
But if these businesses are really good, why have investors marked down their share price?
After all, lots of investors will consider what they might expect from JD Sports. The fact that its shares have more than halved in just 12 months could suggest that many of them do not like what they see.
The reason I am buying is because I take a long-term approach to hunting for great businesses at attractive prices. I recognise that JD, like many companies, faces risks such as higher costs due to inflation and lower sales because of a slowdown in consumer spending.
But I see those as essentially short-term issues. I am looking to value shares based on how their businesses could perform years or even decades from now. Through that investing lens, some FTSE 100 shares look like real bargains for my portfolio right now. I am buying.
