This month, cheap shares have come into vogue. Investors are chasing shares that have been out of favour because of the pandemic and that have the potential to bounce back quickly as the stock market recovers.
The shares prices of housebuilder Vistry Group (LSE: VTY) and airline easyJet (LSE: EZJ) are up 47.5% and 62.5% respectively in just the last month. Usually, such a rapid increase would make me nervous. Certainly, there is some risk buying at these prices – at least in the short term. So, I might be tempted to drip-feed my investments and average down if necessary. Fundamentally though I think the share prices should keep going up and they could be very good investments.
A cheap share with further rises to come
I’m optimistic about Vistry because the shares are relatively cheap, it earns a strong return on capital employed (a sign of a quality business) and it operates in a market where prices are generally resilient. House prices have done well so far, despite the economic backdrop, arguably because of government support.
Furthermore, the housebuilder delivered a positive update just this month. It said it was on track to deliver full-year profit at the top end of its £130m-£140m forecast range. It’s also planning to resume dividend payments in 2021. That’s a step some of the other housebuilders like Persimmon have already taken.
The company also guided for full-year 2021 profits of £310m and expected to cut net debt by a further £100m.
The shares aren’t without risk. Then again, most rewards don’t come without some level of risk. Overall, I’d be very comfortable buying the shares and indeed I’m very tempted to do so.
A recovery in the making for this cheap airline
I also like the look of easyJet as a long term investment for the next few years because the shares have become much cheaper.
The key, I think, will be to look beyond the big losses the company is making right now and focus on the bigger picture. Once conditions improve, there will be pent-up demand for overseas holidays, a return to business travel and much bigger profits for airlines. That’s why I’m optimistic, long term, about the shares.
Even over the next few months, I expect it to do well. Any further positive vaccine updates are likely to boost the market. Although realistically, I think the biggest jumps have already come. The rise now might be more gradual, but I expect easyJet’s share price to still be a winner as we move back towards normal.
I think the shares should recover in time to nearer a level at which they started 2020. Fundamentally the company itself is good and should come out the other side strongly. I think patient, brave investors buying now will be rewarded. That’s why I’m tempted to buy and hold the shares.
