Looking at the list of companies in the flagship FTSE 100 index, one comes across some of the best-known companies in UK industry, from Shell to Barclays.
But some of the iconic shares in this blue-chip index look cheap to me. I think buying them now to hold for the coming year could help me to build wealth over the coming decade.
Finding cheap shares to buy
When I said that the FTSE 100 shares look cheap, what exactly did I mean?
It is not just about their share prices. Vodafone is a Footsie stock that sells for just pennies, for example, but on its own that does not tell me whether or not it is cheap.
Instead, value here is about a share’s price relative to what I think it is worth over the long term.
Inevitably that involves some judgment and indeed that is one reason why share prices move around, as different investors usually have a range of opinions on what the long-term value of a given share may turn out to be.
Long-term price movements
To try and build wealth over the coming decade, I would take a long-term view when trying to find shares I felt were selling for less than they ought to.
An example of this from my own portfolio is British American Tobacco (LSE: BATS).
Some investors think that the shares, selling on a price-to-earnings ratio of 6, look very cheap. After all, the owner of brands like Lucky Strike makes billions of pounds in profits each year and has a huge cigarette business.
Other investors, though, point to long-term decline in cigarette demand. Last year, the business wrote down the long-term value of some of its brands to zero. So to some in the City, British American Tobacco is a stock that does not offer value so much as being a possible value trap.
I think the cigarette business could be around for decades yet, and expect the company to use its expertise to build a huge business in non-cigarette items like vaping. So, I am hoping that in the coming decade, the value of my British American Tobacco shares will go up, not down.
Being paid to wait
On top of that, some Footsie shares pay me a dividend.
British American Tobacco, for example, has a dividend yield close to 10%. So, for each £100 I invest in its shares today, I would hopefully earn almost a tenner in dividends each year.
If I build a portfolio of different FTSE 100 shares and reinvest the dividends, I think they could add up to sizable passive income streams over the coming decade.
Dividends are never guaranteed and share prices can move down as well as up. Still, I think the Footsie contains some bargains hiding in plain sight that I hope could help me get richer over time.
The post Could buying cheap FTSE 100 shares help me get richer in a decade? appeared first on The Motley Fool UK.
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More reading
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C Ruane has positions in British American Tobacco P.l.c. and Vodafone Group Public. The Motley Fool UK has recommended Barclays Plc, British American Tobacco P.l.c., and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
