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There are different ways to try to build wealth. One I use is to buy stakes in proven blue-chip businesses that I hope will grow in value over time, and that will pay me dividends along the way.
At the moment, some FTSE 100 stocks look like bargains to me, so I’m excited to continue to benefit from this strategy in 2025!
A stock is not cheap because of price alone
What do I mean when I say “to negotiate” stocks? It can be tempting to look at a penny stock and think it’s cheap just because the price is pennies. But, as Warren Buffett says, “price is what you pay and value is what you get“.
In other words, the price is the same. It does not indicate whether the item is cheap or expensive. For that, we need to know what is being bought and make a judgment about its value versus how much it costs.
Why can a stock be money?
The theory sounds fine and dandy. But it may raise the question: why is the well-known FTSE 100 not sold at such a low price?
After all, the whole world can – if it chooses – see company accounts and information about the firm, just like I can. So if it is a commodity, why don’t they buy the share and increase the price?
There are various possible explanations and it is important to remember that much of this is based on judgment. I judge that a company has a certain value while another investor thinks it is more or less valuable. There may not be a definitive answer.
To illustrate, look at the stock price chart AstraZeneca in the past year.
The business has had its ups and downs during that time. But honestly, was there less than a quarter in early November than there had been two months ago? I don’t see.
Using weak prices as investment opportunities
As an investor, that kind of price volatility is not a bad thing. In fact, it can be good as it presents opportunities to buy proven blue-chip companies at an attractive price (what market experts call “entry point“).
As an example, one share that I think investors should consider is IM&G (LSE: MNG). It has also had its fair share of price volatility over the past 12 months, trading 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 less than one year. Over time, it has become even more circular.
Are there risks that could help explain some of the price weakness? Of course there are. In the first quarter of last year, for example, the main business saw customers take out more money than they put down. If that trend continues, profits could be tough.
However, M&G has proven to be a cash generator. Because of the strong product, large customer base and high demand for inventory management, that should continue to be the case, in my opinion.
That helped the company to increase its profits. Its yield now stands at 10.2%, among the highest of all FTSE 100 stocks.
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