These were two of my best shares to buy in 2020. Which would I grab for 2021?

For investors, 2020 turned out to be a turbulent and volatile year. But bargain buys were everywhere. These were two of my best shares to buy this year.

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With two trading days left in 2020, the year is nearly over for UK investors. As I write, the FTSE 100 index has added 140 points (2.2%) today to reach 6,643 points. This rise was fuelled by an agreed Brexit deal, plus another round of US stimulus spending. Alas, the Footsie has still lost 900 points this year, down almost an eighth (11.9%). While the UK stock market has declined in 2020, many individual shares soared as investors snapped up cheap stocks. Here were two of my best shares to buy in 2020.

Best shares to buy #1: Lloyds

Lloyds Banking Group (LSE: LLOY) was the UK share I covered most often in 2020. I wrote about Lloyds as one of the best shares to buy dozens of times, because I felt the bank’s stock was deeply undervalued. With the Lloyds share price collapsing to a third of its 2019-20 high, I sensed investors were panicking. I knew that Lloyds had a rock-solid balance sheet, packed with safe assets such as low-risk UK mortgages. Also, Lloyds had billions in excess capital to absorb coronavirus-related loan losses.

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Since their 2020 low of 23.59p on 22 September, Lloyds shares have rebounded hard. My best Lloyds pick was two days later, at 24.58p on 24 September. Today, Lloyds trades at 37.02p, up 57% from their nadir. Having tipped Lloyds so often as a low-risk buy at low prices, it was definitely one of my best shares to buy this year. Also, many investors view Lloyds as a boring, old-world FTSE 100 share, so such high returns are definitely a bonus.

Share #2: Dignity is restored

From a well-known share I repeatedly covered to a high-risk stock I talked about only once — but what a pick. On 16 July, I found the cheap shares of Dignity (LSE: DTY) hugely appealing. Dignity is one of the UK’s leading funeral providers (but not to be confused with Swiss euthanasia clinic Dignitas). Why was Dignity one of my best shares to buy in 2020? Because its stock skyrocketed within one month of me writing about it.

I recall writing about Dignity when it floated in 2004. As the UK’s #2 in funerals (after Co-op Funeralcare) with high operating margins, I liked this business. By October 2016, Dignity was a FTSE 250 powerhouse with a market value of £1.4bn and a share price peaking at 2,820p. Following steep share-price falls in 2017 and 2018, the Competition and Markets Authority (CMA) launched an investigation into funerals in March 2019. This sent Dignity crashing further from one of the best shares to buy to one of the worst, in my view.

With the Dignity share price at 270p, down nine-tenths (90.4%) from its high, I saw deep value in this fallen angel. With the entire group valued at a mere £135m, I argued its shares were ‘cheap as chips’. In August, and due to Covid-19, the CMA abandoned several of its proposed remedies, including price controls. By 14 August, Dignity shares had spiked to 640p, up 137% within a month. By 7 December, they were 736p and trade at 645p today. Nice.

Which would I buy for 2021?

As Dignity’s recovery may already be fully baked into its share price, Lloyds would be my low-risk value pick for 2021. Indeed, when Lloyds restores its dividend, I expect great returns from the bank next year. That’s why I buy Lloyds shares today, ideally inside an ISA for tax-free dividends and capital gains!

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