I’m a huge fan of billionaire investor Warren Buffett’s strategy of building wealth by buying value stocks. It’s why I’m currently searching the FTSE 100 and FTSE 250 indexes for shares that appear to be trading below value.
I already own the following blue-chip UK shares in my Stocks and Shares ISA. And I’m tempted to add more of them to my portfolio in February. I think they could help boost my long-term returns with above-average capital gains.
Target Healthcare REIT
Now could be a good time to buy Target Healthcare REIT (LSE:THRL) as inflationary pressures moderate. A sharp fall in interest rates in response to easing conditions could boost its share price by helping its net asset values (NAVs) to recover.
The FTSE 250 company’s undemanding valuation gives it added scope to rise too. Today, it trades on a forward price-to-earnings (P/E) ratio of just 12.7 times.
I also like TRIG shares because of their enormous dividend yield. At 6.9%, this soars past the forward averages of 3.8% and 3.4% for FTSE 100 and FTSE 250 shares, respectively.
As a major care home operator, this UK share has enormous growth potential as Britain’s elderly population grows. I think it’s a top buy despite the risk of potential staff shortages.
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Rio Tinto
Mining companies like Rio Tinto (LSE:RIO) also face near-term risks as China’s economy cools. News that troubled property developer Evergrande has been ordered to liquidate adds further danger to commodities suppliers.
It’s my opinion however, that pressure in Asia is reflected in some of these companies’ low valuations. Rio Tinto trades on a forward P/E ratio of 8.6 times. An added bonus for value investors is the Footsie firm’s 6.8% yield.
I believe profit here will rise strongly over the next decade as the global commodities supercycle ramps up. Phenomena like the growing green economy, massive infrastructure upgrading in the West, emerging market urbanisation, and increasing digitalisation will all drive demand for industrial metals.
At the same time, massive deficits in several of Rio Tinto’s markets (like copper and lithium) are predicted to emerge as supply fails to keep up with demand. In this scenario, prices of key commodities could leap, driving earnings sharply higher across the sector.
Aviva
Financial services firms like Aviva (LSE:AV.) have struggled to grow revenues as consumer spending has weakened. This remains a risk heading into 2024, but over the coming decades they have big growth potential.
Like Target Healthcare, Aviva is likely to capitalise on demographic changes that will boost demand for its wealth, protection and retirement products. The FTSE 100 company is a market leader across several of its product categories. It also has a strong balance sheet it can use for acquisitions, as well as to continue paying above-average dividends.
With a forward P/E ratio of 9.8 times and 8% dividend yield, I think it could be one of the best value stocks to buy right now. It’s why I’m looking to increase my holdings when I next have spare cash to invest.
