Are cheap UK stocks a decade-defining opportunity to build long-term wealth?

Our writer explores whether buying undervalued UK stocks for their portfolio could be a once-in-a-decade chance to build wealth over time.

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Throughout 2023, numerous banks and analysts have been consistently asserting that the UK stock market is undervalued.

For example, analysts at Schroders conducted research showing that from pretty much every angle you look at them, British shares are exceptionally cheap.

Financial institutions such as Morgan Stanley attribute low valuations to a range of factors. This includes the pessimistic sentiment that followed last year’s mini-Budget meltdown.

Thus, the consensus among the experts appears to be that the market is cheap. If that’s truly the case, it potentially creates a hugely advantageous entry point for investors seeking long-term value.

Unlocking the potential of cheap shares

Undervalued stocks often represent an attractive investment opportunity. After all, it raises the prospect of building serious wealth over time by capitalising on temporary market misplacing.

When a stock is deemed to be cheap or undervalued, it usually means that its market price is considered lower than its intrinsic value. This could be for any number of reasons, ranging from industry misconception to overly negative market sentiment.

Savvy investors who recognise this are in a position to acquire such stocks at a discount. The subsequent expectation being that their true worth will eventually be recognised in due time.

In this way, as the market corrects and share prices rise to better reflect underlying values, investors stand to benefit from some potentially lucrative capital appreciation.

Willingness to be in it for the long haul

That’s all well and good, but it’s worth remembering that this approach demands patience and a long-term perspective. For me to benefit from this potential opportunity, I’ll have to be willing to embrace an investment horizon. Perhaps one that spans years or even even decades.

This will give me sufficient time to overcome the inevitable volatility in financial markets by riding out the short-term peaks and troughs.

Moreover, it’s important to note that while the general consensus suggests the market as a whole is undervalued, this doesn’t imply that every individual UK stock is cheap. Variations in business performance, sector-specific challenges and company-specific factors can lead to divergences in valuations.

A number of stand-out opportunities

Nevertheless, when I survey the FTSE 350, a number of stocks in particular stand out. This includes the likes of Lloyds (P/E: 5.7) and Hargreaves Lansdown (P/E: 10.5). The two companies enjoy well-established market positions and even possess a few decent growth opportunities in my eyes.

In the long run, Hargreaves Lansdown stands to benefit as people save and invest more within their ISAs and SIPPs. Meanwhile, Lloyds’ core focus on growth is resulting in around two thirds of the £3bn strategic investment announced last year going towards growing and diversifying revenue.

As a result, the two companies look significantly undervalued to me, trading at prices that could even turn out to be decade-defining opportunities to build serious wealth. If I had any spare cash to invest, I wouldn’t hesitate to buy some shares of both.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown Plc and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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