The stock market can be a great place to build wealth in some cases. But while some UK shares soar in price and pay large dividends, others do not. Careful selection matters.
Right now I think there are some bargain shares even among the blue-chip ranks of the FTSE 100 index of leading stocks.
In some ways, I see this as a once-in-a-decade opportunity.
In fact, I reckon that if I make the right investment moves in 2024, I might be able to build wealth for the long term.
Bargain shares to buy
There is a reason I see this as potentially being an unusually good moment to buy UK shares.
They are being neglected by many investors and so in some cases look very cheap to me. Yet while investor sentiment may have shifted, I do not think the underlying business fundamentals have changed much.
As an example, consider Legal & General (LSE: LGEN). Most likely, I do not need to introduce the FTSE 100 financial services powerhouse. Its long history and powerful brand mean that it is a household name for many British consumers. I see that as positive: it helps the company to attract new customers without necessarily having to spend lots of money on marketing.
Last year, the firm reported post-tax profits of £2.3bn. Yet despite that – and an 8% dividend yield – it has a market capitalisation of under £15bn.
For a high-yield FTSE 100 business of Legal & General’s quality to be trading on a price-to-earnings (P/E) ratio barely over 6 strikes me as a bargain.
But the thing is, there are quite a few UK shares I think offer excellent right now and would gladly add to my portfolio if I had spare cash to invest. Some, like Vodafone, have been selling close to multidecade low prices.
Bull or bear?
At an individual level, there may be good reasons for a particular share to look cheap. Legal & General faces risks such as a weak economy hurting client demand and resulting in lower profits, for example.
But what about the bigger picture? Quite a few FSTE 100 shares trade on single-digit P/E ratios right now besides Legal & General.
That is partly because a lot of investors have been put off the UK market for a variety of reasons, from wek growth prospects to the mix of companies. The US market, for example, has a lot more hot growth shares listed than London.
But that does not mean that there is not money to be made in UK shares.
In fact, I see the current lacklustre valuations of many blue-chip shares as a chance to build long-term wealth. If I was able to use my full Stocks and Shares ISA allowance this year, for example, I could put it into a diversified portfolio of blue-chip UK shares trading at attractive valuations.
I like that approach because it does not involve buying into companies I do not understand, or ones I have never heard of.
Instead, I could buy shares in well-known firms with profitable, proven business models. Doing that now could potentially set me up to build wealth over the long term.
