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There are different ways to try to generate wealth. One I use is to buy stakes in proven blue-chip companies that I hope can increase in value over time, as well as potentially paying me dividends along the way.
At the moment, some FTSE 100 stocks look like bargains to me, so I'm excited to continue making the most of this strategy in 2025.
A stock is not cheap just because of the price
What do I mean when I say “negotiate”actions? It can be tempting to look at a penny stock and think it's cheap just because the price is in pennies. But, as Warren Buffett says, “Price is what you pay and value is what you get.”.
In other words, the price is just that. It does not indicate whether something is cheap or expensive. To do this, we need to know what we are buying and make a judgment about its value compared to what it costs.
Why would a stock be a bargain?
The theory sounds very good. But this may raise the question: why would a well-known FTSE 100 stock sell for a bargain price?
After all, the rest of the world can, if they wish, see company accounts and information about a company, just as I can. So if it's a bargain, why don't they buy the stock and drive the price up?
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 stock price chart for AstraZeneca during the past year.
The business has had good and bad points during that period. But objectively, was it really worth more than a quarter less at the beginning of November than it had been two months earlier? I doubt.
Exploit weak prices as investment opportunities
However, as an investor, that kind of price volatility isn't necessarily a bad thing. In fact, it can be great, presenting opportunities to buy proven blue-chip companies at an attractive price (what market professionals call the “entry point“).
As an example, a stock I think investors should consider is M&G (LSE: MNG). It has also had its fair share of price volatility over the last 12 months, selling as high as £2.41 and as low as £1.70.
That is, at its highest price, it was 42% above its lowest price. That's just a year from now. Over a longer period of time, it has moved even more.
Are there risks that could help explain some of the price weakness? Surely there are. In the first half of last year, for example, the core business saw clients withdraw more funds than they brought in. If that trend continues, earnings could take a hit.
Still, M&G has proven to be a capable generator of excess cash. Thanks to a strong brand, a large client base and a high demand for asset management, this should remain the case in my opinion.
That has helped the company increase its dividend. Its yield now stands at 10.2%, one of the highest of any FTSE 100 share.
