Some of the biggest companies in Britain, from Shell to AstraZeneca, trade as FTSE 100 shares. That basically means that they are among the biggest 100 companies on the London stock market, judged by their market capitalisation.
That is totally different to profit and in itself does not mean that the companies are necessarily good businesses. Nor does it automatically mean that buying them would be a good investment. Even a successful business can make an unsuccessful investment, depending on what one pays for it.
But as a hunting ground for blue-chip companies with proven business models, I find the FTSE 100 can offer potentially rich pickings.
At the moment, that is not reflected in the price of all FTSE 100 shares, in my opinion.
In fact, I think now is a potentially excellent moment to buy certain FTSE 100 shares.
Why now?
The FTSE 100 hit a record high early last year. It could do the same again this year, although it may also head downwards.
But while some shares have helped propel the flagship index higher, others have done abysmally.
A couple of shares in my portfolio demonstrate the point: Vodafone and British American Tobacco.
The ciggy maker has seen 7% of its valuation go up in smoke over the past five years. The telecoms giant has dialled up some very wrong numbers, with the shares trading for less than half what they cost five years ago.
Both companies are saddled with sizeable debt at a time when interest rates have risen.
Value shares hiding in plain sight
So what? Well, in my view, neither company is on its uppers.
Yes they face challenges. But businesses rarely get to the size of a FTSE 100 company without encountering (and overcoming) significant problems over the course of time. It is par for the course.
Looked at from a different perspective, I reckon these and other blue-chip FTSE 100 shares could match the textbook definition of value shares.
They are clearly unloved by many in the City. But they continue to churn out large profits and have entrenched customer bases in the tens or even hundreds of millions.
Clearly, not all investors can be right.
If this was just a matter of financial analysis and projection, I think that would make it easier to value such FTSE 100 shares.
But other factors have come into play over the past decade, from a cooling economy to the declining popularity of British shares with many overseas investors, as well as UK pension funds. Today’s prices for the shares of some FTSE 100 giants reflect that.
Why I plan to buy
That does not change the underlying value of the companies concerned, however.
Thinking long term, I expect the economy to be in better condition at some point in the future than it is now. I also think the number of seemingly dirt cheap shares in the London market could help attract more active buyers, pushing up prices.
If I can buy into great companies at attractive prices now and hold for the long term, hopefully that can help me build wealth.
That is why I plan to buy a diversified range of bargain FTSE100 shares this year and am spending January adding names to my shopping list.
The post FTSE 100 shares: a once-in-a-decade chance to build wealth? appeared first on The Motley Fool UK.
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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 AstraZeneca 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.
