To make more money than a tracker or ETF, I would invest in these cheap FTSE 100 shares. Both operate in broadly the same industry but are pursuing different strategies. Both share prices have been hit hard by Covid-19. What this means though is that there’s plenty of potential to bounce back strongly.
Cheap share combines income and growth
First up is Legal & General (LSE: LGEN). The insurer and asset manager offers a potentially very profitable combination of a high dividend yield and a low P/E. The former is over 7.5% while the latter on a trailing basis is around seven.
Given the high yield and low P/E, you might think the business faces significant challenges, but in my opinion it doesn’t particularly. Not compared with tobacco or oil companies where you might also find high yield and the opportunity for a share price bounce back.
Legal & General will benefit from an ageing population, changes to pensions and from being very involved in asset management. All of these, I believe, will support its future growth. The company has been growing in the annuities market in recent years, which is a particular highlight.
It seems to be paying off. The group has been raising its dividend and despite Covid-19, it recently announced H1 operating profit, excluding investment losses, fell only 6% to £946m.
To me this all combines to make me think the share price can rise significantly. I think this cheap FTSE 100 shares combine growth and income potential.
Cheap FTSE 100 share with turnaround potential
Fellow FTSE 100 insurer and asset manager Aviva (LSE: AV) is a little further behind in its strategic development. Its shares are also dirt-cheap though. It’s P/E is below five, which is unbelievably cheap, I feel.
This partly reflects concerns over the economy, investment returns in a turbulent economy and about the direction Aviva will follow in the future. I think this uncertainty makes the shares too cheap to ignore for a long-term investor.
The group has a strong brand and balance sheet and new leadership. Combined, these factors could see the share price recover strongly. As could a consolidation of the group that could see it sell off international divisions to concentrate more and more on the UK and Ireland, as well as Canada.
Recent results showed Aviva hasn’t been hit too hard by the virus. Operating profit fell to £1.25bn from £1.38bn. Aviva took a £165m hit from Covid-19 on general insurance claims. The group also reintroduced its dividend, reflecting some confidence about the future.
There are reasons some investors who are focused on momentum or quick wins might avoid shares in Legal & General and Aviva. But for long-term investors, now might be a good time to pick up the shares. They are cheap and offer the potential to bounce back as and when the economy recovers. I strongly believe both are dirt-cheap stocks that could outperform the market.
Andy Ross owns shares in Legal & General. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.