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At the top of my wish list this Christmas is one entry: “cheap stocks.” And right now I see a lot of things out there.
There are many ways to build long-term wealth. But my plan is to buy undervalued stocks and hold on to them for the next few years. The long-term capital growth I hope to accumulate along the way I will use to fund my lifestyle in the future.
The market has gone through many ups and downs in the last three years. The pandemic, rising energy prices, wars and the cost of living crisis have deterred some investors from buying stocks. But with that I see many opportunities.
2023 may be coming to an end, but I'm not slowing down. I hope to have some extra money this month. This is what I plan to do with it.
Is cash really king?
Now that some savings accounts offer interest rates above 5%, it can be tempting to put my money in savings. However, I see this as a short-term solution.
Of course, it makes sense to have some money saved for a rainy day. But research shows that over the long term, stocks consistently outperform cash.
I have a term of 30 years. Therefore, by leaving my cash in the bank, I would be missing out on the growth opportunities that the market offers. For example, since its inception, the FTSE 100 It has an average annualized return of around 6%-7%.
What to buy
So to put my plan into action, what should I buy?
Well, right now I'm focusing my attention on UK stocks. Of these, I'm looking Safe store (LSE: SAFE), a stock I already own.
The storage unit supplier has had problems in the last 12 months. During this time, more than 13% has been shaved off its share price. However, with a P/E ratio of just 6.2, it looks cheap to me.
There is a chance that the stock could continue to struggle in the coming months. High interest rates mean that purchasing facilities will be more expensive and the company also has some debt that will be more expensive to service. Additionally, there is the threat of increasing competition.
However, with international expansion plans, I believe the long-term outlook for Safestore is positive. Being the clear market leader in the UK, it has now returned to Europe in search of growth opportunities. Since last year, the company has added development sites in Paris, the Netherlands and Germany, to name a few.
On top of all that, it has a dividend yield of 3.7%, which is around the Footsie average. While I am aware that dividends are never guaranteed, its total dividend payout increased from £31.9m in H1 2022 to £37.7m in H1 2023, showing that the company is eager to return to shareholders. Over the last decade, its dividend has increased almost 20% annually.
The movement
You could wait until the New Year or try to play the market in the hope that prices continue to fall. But I'm going to take action in December. And I will focus on stocks like Safestore.