Why I’d snap up bargain UK shares to try and build wealth
Why I’d snap up bargain UK shares to try and build wealth
Many people dream of building substantial wealth over the long term. From paying school fees to buying a dream home, it could help!
But finding a way to make that aspiration come true can be challenging. I think buying bargain UK shares could potentially be what I am looking for.
How shares can build wealth
There are two key ways in which owning shares could help me build wealth. One is an increase in the share price and the other is receiving dividends.
Neither is guaranteed though. Indeed, the share price may fall. So selecting the right shares is critical to long-term success in investing.
Finding the right shares to buy
So how would I try to do that? If I was to summarise in a single word the thing I would most look for when hunting for UK shares to buy for my ISA, it would be value.
Value does not necessarily mean a low share price, though it can. Rather, it means paying less for something than it is worth.
Ideally, I would be paying substantially less than it is worth, as that would increase what Warren Buffett refers to as a margin of safety.
But when looking for value, I would also be keeping an eye out for enduring quality. So my focus would be on finding companies with a competitive advantage (or multiple advantages) within an industry I expect to have strong customer demand for the long term.
One share I’m eyeing
As an example, consider Unilever (LSE: ULVR). The company’s focus on everyday products like bleach and washing up liquid means that its potential market is huge and likely to remain that way. Indeed, every day, several billion consumers use a Unilever product.
By building a portfolio of premium brands like Cif, the company is able to differentiate its offer from rivals and so charge a price premium. That means the company is able to earn sizeable profits that can be used to fund its quarterly dividend.
Despite that, this UK share has fallen 8% over the past five years.
I do see risks, such as inflation pushing up the cost of everything from chemical ingredients to packaging materials. That could hurt the company’s profit margins.
Over the long run though, I think Unilever is the sort of UK share that might help me build wealth, through a combination of potential price gain and also dividends.
Bargain-hunting
But while I am eyeing Unilever, for now at least I do not own it. Its price-to-earnings ratio of 19 strikes me as reasonable, but not exactly a bargain.
Like Buffett, rather than investing in lots of companies I think look somewhat attractively priced, I would ideally prefer to wait for what I see as screaming bargains to come along.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever Plc. 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.