To me, even the upper echelons of the UK stock market continue to offer pockets of what I see as deep value. So, I have been looking for once popular blue-chip shares to buy that have seen their valuations tumble.
I reckon that could help me build wealth and, perhaps, even retire early!
Hard times versus out of time
But let me be clear here. I am not looking just for any old FTSE 100 share that has seen its share price stumble.
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After all, a share may fall for good reason, such as a decline in long-term demand for what it sells.
Just look at some of the original constituents of the FTSE 100 index 40 years ago. From Hawker Siddely to English China Clays, some names now belong in the business graveyard.
So, I am looking for blue-chip shares that have fallen out of fashion – but I think may still have their best days ahead of them.
One share to consider buying
One example of such a share I think investors should consider buying is B&M (LSE: BME).
Since the start of 2024, the FTSE 100 discount retailer has been heavily discounted itself. The share price has fallen 39% over that period, meaning it now stands 9% below where it was five years ago.
Why?
One clear explanation is weakening profitability. The company’s interim results released earlier this month spelled this out in detail.
Revenue grew 3.7% compared to the prior year.
But operating profit was down 14.6%. Pre-tax profit tumbled 23.8%. Post-tax free cash flow crashed 49.2%.
Clearly, B&M management has its work cut out. The interim results announcement was chipper and I would have appreciated more candour on why recent performance has been so disappointing in some ways. I see further risks, including rising container shipping costs hurting B&M’s heavily import-focussed business.
Still, I think the company looks cheap to buy at its current share price. It has a proven formula and a unique position in the high street.
A weak economy could help push up customer demand. B&M’s European expansion continues apace, potentially offering lots of white space and also economies of scale.
Looking to the future
An example of a fallen FTSE 100 share I have bought this year is Legal & General (LSE: LGEN). The share sells for 21% less now than it did five years ago.
That reflects a number of concerns, including a planned reduction in the annual growth rate for dividends and falling earnings. Any severe economic downturn could be a further risk to earnings, if policyholders start to pull out funds.
Still, the FTSE 100 share continues to plan annual dividend increases – and already yields 9.3%. If I could compound my diversified portfolio at that level over the next couple of decades and keep making sizeable regular contributions, hopefully I could build a nest egg that lets me retire early even if only by a couple of years.
