With almost no investments at 30, can UK stocks make me rich?

UK stocks form the backbone of my portfolio. Over the past year, it has not been good for me. Most of the non-resource stocks have tanked amid the growing recession environment.

But soon, I was able to restart my portfolio from scratch after buying the house I planned.

So, how much money should I invest in UK stocks? And can I rely on them to help me build wealth and possibly become rich?

Opportunity knocks

Now doesn’t seem like a bad time to start a portfolio, especially if I have some startup capital.

And that’s because many UK stocks are trading at a discount. At FTSE 100 has been pulled up by surging resource stocks. But the reality is that many sectors are challenged by the prevailing economic conditions.

For example, stocks in the housing sector are down about 40% over 12 months, on average.

Now, there’s usually a good reason for stocks to be cheap. Investors may be concerned about short-term performance, long-term prospects, dividend health, or all of the above.

So, I can’t fill my portfolio with stocks that are cheaper now than they were a year ago. However, I need to find UK stocks that are undervalued.

UK stocks are undervalued

UK stocks have underperformed this year because of the economic environment, characterized by high levels of inflation, higher interest rates, and low growth.

This is compounded by factors such as increased barriers to trade post-Brexit and nearly 10 million working-age Britons choosing not to work.

One could argue that UK stocks have been significantly undervalued since the Brexit vote. But this depends on how you see the future of England.

I am quite optimistic, and because I think that there is an understanding that needs to change.

But despite this, I think UK stocks are a good place to look for undervalued stocks.

Because of this, and concerns that the pound rises can wipe out the gains in dollar-denominated stocks, I fill with most of the portfolio to be UK-focused.

So, I rarely invest in US stocks, and I only do this when I have strong faith in the growth potential.

Find undervalued stocks

Finding an undervalued stock requires me to do some research. I can start by looking at simple short-term metrics such as the price-to-earnings ratio or the EV-to-EBITDA ratio. I can compare this figure to others and not peers in the industry.

And that should give me an idea if the stock is cheap or not.

However, if I want to be more precise. Using the discounted cash flow (DCF) model is a better option.

For example, Lloyds is one of my top picks right now. And, using the DCF model I found online, I can see that two analysts have the stock undervalued – one by 43% and one by 63%.

Buying now also gives me the opportunity to take advantage of some pretty big dividend yields. Because when stock prices go down – assuming dividend payments don’t change – dividend yields go up.

So, can buying UK stocks make me rich? It depends. If I can earn 8% per year with a compound return strategy over 20 years, I can turn £20,000 into £98,000. Not rich, but I’ll be happy. And if I put in another, the sky is the limit!