Investing in cheap shares and holding them for the long run is a powerful way to generate some handsome returns. And right now, there’s an array of shares for investors to consider in the FTSE 100.
It’s been a volatile couple of years. And I’m expecting much of the same in 2024. However, this won’t put me off. Instead, I’m searching for opportunities.
Playing the long game
In the short term, periods of volatility and peaks and troughs can be expected in the stock market. However, that doesn’t bother me. That’s because like all my colleagues here at The Motley Fool, when I invest in a company, I invest for the long term. After all, time and time again the market has proven this is the most sustainable way to reap its rewards.
Take the FTSE 100 as an example. Last year saw it rise just 2%. In 2020, it plummeted by 15%. However, even including these subpar performances, since its inception in 1984, it has returned around 7% per year on average.
Barclays
So, with that said, where do I see value? What sort of companies could I buy today and potentially see impressive gains on in the long term?
Well, I like the look of banking stocks at the moment. Therefore, I’m keen on adding to my Barclays (LSE: BARC) position. It’s not been the greatest of starts to 2024 for the stock. Year to date, it has slumped by nearly 10%. With that, however, I see an opportunity to swoop in and buy.
With its share price falling, it now trades on a price-to-earnings ratio of just four. In my opinion, that’s absurdly cheap. It’s also considerably lower than the FTSE 100 average of 11. Adding to that, its price-to-book ratio, which compares its market valuation with its net asset value, is just 0.33.
Coupled with its cheap valuation is the opportunity to generate some extra cash on the side via its meaty 5.5% dividend yield. Of course, dividends are never guaranteed. However, with it covered a massive 4.4 times by earnings, that makes it one of the most well-covered yields on the UK market. I’m highly confident the bank will pay out. There are also forecasts for it to lift its dividend in 2024.
The stocks struggled recently and I’m expecting further volatility in the weeks and months to come. Higher interest rates have seen the firm benefit from being able to charge more when lending. However, there are signs these benefits are dwindling as predictions for its net interest margin begin to fall. To add to that, around 60% of the bank’s revenue is earned in the UK. Any signs of a domestic wobble could see the stock suffer.
Regardless, a CET1 ratio of around 14% signifies the bank has a strong balance sheet to weather the choppy months to come.
In the weeks ahead, with any spare cash, I plan on adding to my position in Barclays. In the months to come in 2024, it’s undervalued stocks like Barclays that I’ll be buying and holding onto for decades ahead.
