Buying high-quality cheap shares is how I plan to continue building my wealth in 2024 and the years to come. Their discounted valuations provide investors with the opportunity to generate some handsome returns.
This is a method of my favourite investor Warren Buffett. It’s a tactic he’s used for over eight decades. During that time, he’s been able to build a fortune of over $120bn.
To build my wealth, I’m targeting the FTSE 100 and FTSE 250.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Sticking with it
The stock market hasn’t proved to be the most fruitful place to be in the last few years. But I’m sticking with it. Last year saw the FTSE 100 return just 2%. That’s not the sort of return I’m looking for. However, since its inception, it has returned 7% per year on average. That’s more like it.
With interest rates high, I may be tempted to leave my cash in a savings account. After all, I could receive up to 6% interest with some accounts. However, I plan to have my money tied up in the stock market for as long as possible. By doing so, I’m able to capitalise on growth opportunities I couldn’t get from leaving my cash in the bank.
Picking the best
There’s a host of cheap shares I like the look of. But there are two in particular I’m keen on buying soon if I have the cash.
One of them is Barclays (LSE: BARC). With a price-to-earnings (P/E) ratio of 4.4, it looks dirt cheap. But that’s not the only reason I’m interested in the stock. Its price-to-book ratio, which compares its market valuation with its net asset value, is around 0.3.
Barclays stock has wobbled in the last year or so, in part because of interest rates. Higher rates have allowed the bank to charge customers more when lending. But with predictions that its net interest margin will fall, it seems the benefits of higher rates may be fading. Its also fairly reliant on the UK for generating revenue. That could also see it struggle in the months ahead.
But I’m a long-term investor. And there’s an impressive 5.2% dividend yield to tide me over for the time being. Of course, dividends are never guaranteed. And any struggles this year could see the firm cut or reduce it. Yet as it’s covered over four times by earnings, I’d expect it to be safe.
I’m also eyeing ITV (LSE: ITV). The broadcaster seems to have fallen out of favour with investors in recent times. But with a P/E ratio of 9.1, I’m sensing an opportunity.
I can see why the stock isn’t as popular as it once was. The advertising market is suffering a major downturn. This was evident in the firm’s weak advertising revenues for the first half of 2023.
However, I think there’s plenty to like about ITV. Firstly, it’s a well-known brand with strong cash flow and reserves. Its also invested heavily in its streaming platform, ITVX. And while that’s proved expensive in the short term, I see its investment in digital streaming as a smart long-term move. Like Barclays, I can also generate passive income via the meaty 8% yield it offers.
