When it comes to buying high-quality blue-chip companies, I think there’s no better place to look than the FTSE 100. It’s full to the brim with such shares. What’s more, many look severely undervalued right now.
It’s been a volatile few years in the stock market. If I had to put money on it, I’d expect 2024 to be the same. However, by buying quality, and letting time work its magic, I’m confident of building wealth in the decades to come.
With that, I’m looking to add to my holdings in February. These two shares are contenders.
Luxury powerhouse
Luxury goods stalwart Burberry (LSE: BRBY) has been through a torrid spell. Some 46.1% has been shaved off its share price in the last 12 months. It’s down over 6.6% in 2024 already.
But I think that could make it a savvy buy. Granted, the firm has taken a hit. But wouldn’t now be a smart time to swoop in and load up on its cheap shares?
I’d say so. And with a price-to-earnings (P/E) ratio of 11.6, its shares do look like a bargain. Its historic average is around 24. In my opinion, that suggests there’s plenty of value to be had.
The firm’s been hit in recent times by a slowdown in global luxury spending. Inflation has squeezed the pockets of consumers. No doubt it’ll continue to struggle in the months ahead as people continue to be more careful when it comes to splashing out on high-end goods.
However, I’m expecting sentiment around Burberry to pick up as the year goes on and interest rates are hopefully cut. This should see consumer spending pick up.
Short-term headwinds don’t concern me. Long term, I’m confident Burberry will find its mojo again. A 4.7% dividend yield will tide me over for the time being.
Banking giant
Continuing the theme of undervalued shares that have endured a rough patch, I’m also looking at Barclays (LSE: BARC).
The stock has struggled in the last few years as macroeconomic pressures have taken their toll. Raging inflation and high interest rates have seen investors turn their backs on the Blue Eagle Bank. In the last year, it’s down 19.5%.
Yet I think Barclays now looks like one of the best bargains out there. It trades on a P/E ratio of 4.5. That’s dirt cheap. Coupled with that, its yield is over 5%, covered comfortably by earnings. Even so, it’s worth noting that dividends are never guaranteed.
There’s plenty more to like about the stock. For example, in February the bank will undergo a strategic review as it focuses on issues such as cost-cutting and capital allocation. This will hopefully help it refine its strategic direction going forward.
Interest rates will impact the performance of its shares this year. While higher rates provide extra income, they also include risks such as defaults and credit impairments. So, I’d expect further volatility. That said, like Burberry, I’d suspect any cuts will offer Barclays a major boost.
At its current price, I think Barclays is too cheap to ignore. This month, I’m keen to top up my position with any spare cash.
