There are different ways to try and build wealth. One I use is buying stakes in proven blue-chip businesses that I hope can grow in value over time, as well as potentially paying me dividends along the way.
At the moment, some FTSE 100 shares look like bargains to me, so I am excited to keep making the most of this strategy in 2025!
A share isn’t cheap because of price alone
What do I mean when I talk about “bargain” shares? It can be tempting to look at a penny share and think it is cheap just because the price is in pennies. But, as Warren Buffett says, “price is what you pay and value is what you get”.
Should you invest £1,000 in M&G right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if M&G made the list?
In other words, price is just that. It does not indicate whether something is cheap or expensive. For that, we need to know what is being bought and make a judgement about its value compared to what it costs.
Why would a stock be a bargain?
The theory sounds well and good. But it may raise a question: why would a well-known FTSE 100 share be selling at a bargain price?
After all, the rest of the world can – if it chooses to – see the company accounts and information about a firm, just like I can. So if it is a bargain, why are they not buying the share and pushing up the price?
There are different possible explanations and it is also important to remember that a lot of this is based on judgement. I judge that a company is worth a certain amount while another investor thinks it is worth more or less. There may be no objectively correct answer.
To illustrate, look at the share price chart for AstraZeneca over the past year.
The business has had good and bad points during that period. But objectively, was it really worth over a quarter less at the start of November than it had been two months before? I doubt it.
Exploiting weak prices as investing opportunities
As an investor though, that sort of price volatility is not necessarily a bad thing. In fact, it can be great as it presents opportunities to buy into proven blue-chip companies at an attractive price (what market professionals call the “entry point”).
As an example, one share I think investors should consider is M&G (LSE: MNG). It too has had its fair share of price volatility over the past 12 months, selling as high as £2.41 and as low as £1.70.
In other words, at its highest price, it was 42% above its lowest price. That is just within one year. Over a longer timeframe, it has moved around even more.
Are there risks that could help explain some of the price weakness? Sure there are. In the first half of last year, for example, the core business saw clients take out more funds than they put in. If that trend continues, profits could suffer.
Still, M&G has proven an able generator of excess cash. Thanks to a strong brand, large client base and high demand for asset management, that should continue to be the case, in my view.
That has helped the firm grow its dividend. Its yield now stands at 10.2%, among the highest of any FTSE 100 share.
