To date, November has been a marvellous month for UK shareholders, especially those who bought cheap shares in late October. The FTSE 100 index rose for eight days in a row — from Monday, 2 November, until yesterday — before easing back today. As I write, the Footsie stands at 6,302 points, up over 725 points (13%) so far this month.
However, it’s been a grim year for the UK market, with the main index losing a brutal 1,240 points — a sixth (16.4%) — since the end of 2019. Thus, I can’t help thinking that the FTSE 100 is cheap in historical terms. What’s more, I can see clear value in several quality companies whose stocks have been hurled into in the ‘cheap shares’ bin. Here are two cheap shares I’d gladly buy today.
Cheap shares: Will Shell be well in 2021?
Royal Dutch Shell (LSE: RDSB) is one of the very worst-performing FTSE 100 shares in 2020. At the end of 2019, Shell shares traded at 2,239.5p, before rising to
As I write, Shell shares are 1,107.6p, up a whopping 27.9% in just two weeks. That’s an excellent return in a fortnight, but I suspect there is more to come. After all, Shell is a gargantuan global business, employing 80,000 workers in over 70 countries. In 2019, Shell’s revenues were nearly $345bn (£262bn), but its market value is a lowly £76.6bn today. Admittedly, Shell slashed its yearly dividend by two-thirds in the spring. But they still have a dividend yield approaching 5%, which will rise over time. When the world economy moves beyond Covid-19 and oil demand rises, Shell shares will look like a bargain at today’s prices. That’s why I’d buy Shell today and hold these cheap shares for the long term.
I love the look of Legal & General
The second of my cheap shares to perform handsomely this month is a household name: Legal & General (LSE: LGEN). Legal & General is a UK market leader in protection and savings, having been around for 184 years. It’s also a well-respected brand with over 10 million customers worldwide. L&G manages over £1trn of investors’ wealth, making it one of Europe’s biggest asset managers. Yet, with fears growing of a second Covid-19 lockdown, these cheap shares became ridiculously cheap during September and October.
On 28 October, L&G shares closed at 182.35p, which seems a crazily low price to me. At this point, shares in this great British business traded on a price-to-earnings ratio of 9 and an earnings yield of 11%. For me, that was the bargain of a lifetime. Today, L&G’s share price hovers around 229p, up over a quarter (25.6%) since 28 October. Yet, even after November’s fireworks, I see L&G shares as too low-priced for part-ownership of an widely admired, quality business. Hence, I’d happily buy these cheap shares today, ideally inside an ISA, to enjoy decades of tax-free dividends and capital gains!
