As a fresh new year begins, the FTSE 350‘s bulging with cheap shares. There’s a reason why US companies and private equity firms are snapping up UK businesses. After a bumpy few years for the economy, they look brilliant value.
I’ve run through my portfolio and picked out two stocks I’ve added since turning 50. I bought both because they looked bargains, but with bags of long-term share price and dividend income growth potential.
FTSE 100-listed pharmaceutical giant GSK‘s (LSE: GSK) been a huge disappointment. The shares have had a rough year, falling 8% over 12 months. Personally, I’m down a painful 18.5%. And I thought this was a defensive stock.
GSK’s year was overshadowed by a US class action lawsuit taken against former heartburn treatment Zantac, alleged to cause cancer. When GSK settled for a lower sum than many feared, the relief was short-lived. The stock ran straight into President-elect Donald Trump.
I’m backing GSK to bounce back
His decision to pick controversial vaccine sceptic Robert F Kennedy Jr to lead the US Department of Health and Human Services, hit pharma stocks across the board. GSK’s reported a slew of new drugs approvals in the US, Europe and China, but that wasn’t enough to cheer investors.
2025 could be bumpy too, but with a price-to-earnings (P/E) ratio of just 8.78 times earnings and yield of 4.25%, I think GSK remains a good long-term buy-and-hold. I hope to hold it to retirement and beyond.
Happily, my second stock pick has enjoyed a much stronger year, FTSE 250-listed financial services firm Just Group (LSE: JUST).
Just specialises in the retirement segment of the market. As the nation ages, that’s a good place to be, assuming it gets its strategy right. It sells annuities, retirement income and equity release plans. It’s also taking advantage of rapid growth in the bulk annuity market.
Just’s shares are still in the recovery phase after suffering a major blow in 2018 when the Prudential Regulation Authority forced firms to hold more capital to protect against equity release risks. Low interest rates and stiff competition didn’t help.
I expect my Just Group shares to fly even higher
It’s rebounded nicely since as the threat subsided, with the share price up 90% over the last 12 months. That makes it the biggest winner in my portfolio. Yet with a lowly P/E ratio of just 5.8 times, I’m hoping for even more growth this year.
Just still operates in a competitive market, where it has to go toe-to-toe with the big FTSE 100 players. Equity release demand hasn’t fully recovered from the pandemic. The stock doesn’t pay much income either. The yield is just 1.29%.
There’s no way I’m banking my fat profit though. I plan to remain invested for the rest of my 50s, and with luck all of my 60s and 70s too. The same goes for GSK. Over time, I’m confident it will regain its lost value.
In both cases, I’ll reinvest every dividend I receive until I finally need to draw them as income. I do love a bargain. Now I’m going shopping for more cheap UK shares.
