These 12 blue chips have hardly been cheaper in the last year.
I love buying cheap shares. But deciding if a share is set for recovery or about to fall further is tough.
One of the very best ways to find cheap shares is to use a statistics package. Here, I have examined the FTSE 100 (UKX) to find companies that are trading near their lowest price in a year.
With the FTSE 100 trading 12% above its own low for the year, it has been tougher than usual to find cheap shares. These 12 companies all trade within 10% of their lowest price of the year.
| Company | Price (p) | P/E (forecast) | Yield (forecast, %) | Market cap (£m) |
|---|
| Royal Dutch Shell | 2,161 | 8.2 | 5.1 | 135,246 |
| Vodafone | 160 | 10.3 | 6.1 | 78,714 |
| GlaxoSmithKline | 1,345 | 11.9 | 5.5 | 66,303 |
| BG | 1,084 | 12.8 | 1.5 | 36,874 |
| Anglo American | 1,802 | 13.2 | 2.6 | 25,052 |
| Tullow Oil | 1,258 | 25.1 | 0.8 | 11,414 |
| Pearson | 1,210 | 14.3 | 3.7 | 9,874 |
| WM Morrison Supermarkets | 268 | 9.9 | 4.4 | 6,456 |
| Severn Trent | 1,565 | 16.6 | 4.9 | 3,730 |
| Eurasian Natural Resources | 280 | 8.1 | 2.4 | 3,608 |
| G4S | 249 | 11.1 | 3.4 | 3,540 |
| Pennon | 607 | 14.2 | 4.6 | 2,250 |
Data from Stockopedia
I've picked out five shares for further analysis.
1) Royal Dutch Shell
Royal Dutch Shell (LSE: RDSB) is one of the most successful companies you can buy today. The company has over 100 years of history and a global footprint.
Shell's dividend is a thing of beauty. Currently, the company is forecast to pay $1.76 for 2012, putting the shares on a yield of 5.1%. That dividend has not been cut since the Second World War. In 2011, no other UK company paid out more in dividends than Shell. Few companies on the planet can have paid out more in dividends in their entire lifetime than Shell has.
Although a slight dip in earnings is expected for 2012, growth is forecast to return in 2013. The dividend is expected to rise this year and next. In the last five years, that dividend has increased by an average of 5.7%, year-on-year.
2) GlaxoSmithKline
GlaxoSmithKline (LSE: GSK) currently trades on a forward price-to-earnings (P/E) ratio of 11.9. That's considerably below the FTSE 100 average of 15.3. So, why the discount?
Glaxo is one of the most successful companies on the market. Through both organic growth and acquisitions, it has become a true titan share. However, the market is today expecting that future growth will be weak.
Investors expect that the current squeeze on government finances worldwide will affect Glaxo's ability to sell drugs. Add in fears over generic competition, and it is easy to see how the shares are trading at a discount.
Despite all of that, dividend and earnings growth is forecast for the next two years at Glaxo. This puts the shares on a prospective 2013 P/E of 11.3, with an expected yield of 5.8%.
3) WM Morrison Supermarkets
Much investor attention in the grocery sector has focused on Tesco. However, I believe that the bigger story is at FTSE 100 peer WM Morrison Supermarkets (LSE: MRW).
Morrisons' shares today trade within just 4% of a three-year low. On a P/E of 9.9 times forecast earnings for the full year, I cannot recall the shares ever being so cheap.
Shares in Morrisons are down 17.6% this year as analysts have reduced their earnings estimates. One year ago, analysts expected that Morrisons would report earnings of 29p for this year. Now, they reckon that the company will make earnings per share (EPS) of 27p.
Morrisons is still expected to deliver earnings and dividend growth this year and next. The share price action suggests that investors are less than convinced.
4) Pennon
Pennon (LSE: PNN) is the utility firm that owns South West Water. Pennon also owns Viridor, a recycling and west management business. It is trading at Viridor that is currently hampering Pennon.
In the company's recent interim results, Pennon reported a 10% increase in profits at South West Water and a 26.5% decline at Viridor. Despite this, the company was still able to increase EPS by 3.4% and the dividend by 6.6%. In the first six months, Viridor delivered 21% of the company's profit before tax. The market is clearly concerned that Viridor is holding Pennon back.
On a forward P/E of 14.2, investors are not too worried yet. As would be expected with a utility, the dividend yield is significant and in recent years has been faster than inflation.
5) Vodafone
Vodafone (LSE: VOD), like Shell, is another big dividend payer. In the most recent Capita Dividend Monitor report, Vodafone was named as the UK company that had paid out the most in dividends in the third quarter of 2012. This was thanks, in part, to a huge special dividend from its US joint venture.
While a special dividend is not expected again this year, recent half-year results showed a 7.2% increase in the interim dividend. The company will also be spending £1.5bn buying back its own shares in the market.
Many investors do not like share buybacks. However, I see scope for the buyback creating a surge of demand for the shares. This could create a short-term share price rise. Even if this doesn't come through, I will continue to hold my shares for that juicy yield.
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> David owns shares in Vodafone but none of the other companies mentioned. The Motley Fool owns shares in Tesco, and has recommended shares in Vodafone.
