Buying UK shares in recent years has not always felt like a rewarding move. Many blue-chip names may have looked cheap, but have then continued to fall in price.
However, as a long-term investor I do not fixate on short-term moves in share prices.
After a challenging few years for the economy, I think some British shares that now look cheap may indeed offer me the sort of buying opportunity that comes around only rarely.
A tough decade
Back in 2014, the financial crisis was increasingly in the rearview mirror.
Since then, however, a series of events from EU withdrawal to the pandemic have knocked investor confidence in the City of London.
That has resulted in some shares trading at prices I think do not reflect their long-term value. Scooping them up now could potentially offer me the opportunity to get rich in years to come, thanks to a combination of possible share-price growth and dividends.
Quality on sale
As an example, consider one FTSE 100 share in my portfolio: British American Tobacco (LSE: BATS).
Its shares have been trading at levels last seen back in 2011 – well over a decade ago. It currently sits on a price-to-earnings (P/E) ratio of under 6 and a dividend yield of 9.9%.
Certainly, there are risks for the firm. They include a large debt pile to ongoing declines in cigarette smoking rates across most markets. But the same might be said of New York-listed rival Altria. It also derives most of its income in British American’s key market of the US. But while Altria also yields over 9%, its P/E ratio is over 8.
Being listed on the London market right now seems to mean that, in many cases, shares attract a lower valuation than overseas peers.
But if the businesses keep pumping out the profits – last year, British American generated post-tax earnings of £6.8bn – then sooner or later I think valuations ought to start to reflect that more closely again. Meanwhile, some Footsie shares are paying me a handsome dividend each year simply for owning them.
Aiming to get rich
My strategy is therefore simple.
When I have spare cash to invest in 2024, I plan to build up my portfolio of blue-chip UK shares that I think are trading at a significant discount to what I see as their long-term value.
Hopefully doing that could help me to build a portfolio that may grow in value over the following years. It could also generating considerable passive income streams for me in the form of dividends.
Compounding those dividends could give me more money to spend on scooping up British-listed stocks I see as trading at bargain prices.
Not all shares with low prices are cheap, just as those with high prices are not necessarily expensive. So I will be focussed on finding what looks like great value when buying shares in companies that I think have strong business prospects.
