The March stock market crash still means the FTSE 100 and FTSE 250 are lower than they were at the start of the year. Does that mean that, even with the more recent recovery, there are still cheap shares out there for savvy long-term investors to buy, hold and profit from?
Perhaps. One company that will be on many investors’ radar is oil major BP (LSE: BP). Its share price has fallen heavily.
The peril of BP’s cheap shares
Analysts are warning that BP may have to cut its dividend. That’s hardly surprising given that its peer Shell has already taken that move.
Adding to the bleak picture is the possibility of massive writedowns and the falling oil price. Debt has also been rising over the last two years. There can be little doubt in my mind that investing in these cheap shares is a risk and would likely be a rollercoaster ride.
Yet from an income perspective I think that even if the dividend is reset – maybe a third lower – there would still be a high dividend yield. So it could be one to consider for income investors. I’d suggest though it would be better to buy after an official announcement of a dividend cut – assuming of course that’s what management does. Then the picture will then be much clearer.
Overall, I’m not keen on these particular cheap shares, despite the price having fallen by over 33% so far this year. And despite it having a dividend yield (for now) of over 10%. The shares seem speculative and the long-term structural decline if the industry means I don’t see huge growth from the share price.
easyJet share price tumbled
So are there any better cheap shares among the crash’s big fallers? Shares in easyJet (LSE: EZJ) have fallen even further than BP’s. The share price is down 44% during 2020 so far. Obviously coronavirus is the biggest driver of the fall.
Airlines have been battered by the pandemic and look to many to be on the ropes. But I feel they face fewer structural problems than the oil producers. Pre-coronavirus the picture looked decent with air travel expected to grow strongly. That’s now changed for a while, hence the lower share price.
Overall, easyJet has a strong brand, a large presence in budget travel and strong sales distribution channels. How often do you end up travelling on easyJet just because it’s the cheapest option?
The arguments with founder Sir Stelios Haji-Ioannou at the board level over the purchasing of more aircraft have been a distraction. An unwelcome one I’d imagine for most existing investors, especially at a difficult time for the company.
However, I expect easyJet to make it through this crisis and in the coming years for air travel, to get back to operating in a more normal environment. I think once that happens, the share price will substantially recover and potentially have a lot of upside from where it currently is. It’ll require patience though.
In my view however, I think the shares look cheap and are worth buying. I may even add some of these cheap shares to a SIPP and tuck them away for a few years.
