October was pretty grim for UK shareholders, with the FTSE 100 index diving nearly 290 points (4.9%). However, November has seen a dramatic turnaround, with the index leaping by almost 750 points (13.4%) since Halloween. This bounce-back was driven by two events: first, Joe Biden winning the US presidential election. Second, news four days ago of a Covid-19 vaccine with over 90% efficacy sent share prices soaring.
Despite this surge, the Footsie has lost 1,220 points (16.2%) this calendar year. That’s why I see many cheap shares still on sale. Here are two I’d eagerly buy right now:
Cheap shares: Vodafone is a dividend dynamo
The first of my cheap shares is a global leader in telecoms: Vodafone Group (LSE: VOD). At the turn of the century, Vodafone was the largest company in Europe, but then came the dotcom bust. Yet Vodafone remains a powerhouse, with over 625 million customers in 65 countries, mostly in Europe and Africa. At their 52-week high on 13 November last year, Vodafone shares closed at nearly 167.5p. By 4 September, they had more than halved, plunging to just 87.1p. Even in late October, you could buy Vodafone stock for little more than £1.
Today, Vodafone’s share price is 119.2p, up a tidy 16.2p (15.7%) in November. With this global Goliath’s market value only £28.2bn, I see Vodafone shares as still on sale. After all, they are down more than a quarter (27.7%) over 12 months. As a value investor, I’m mostly drawn to Vodafone’s cheap shares for their delightful dividend yield, currently around 6.7% a year. With such high cash returns few and far between, I’d happily buy Vodafone today to bank decades of bumper dividends and future capital gains.
M&G: Money & Gains to come?
I’ve been banging on about the second of my cheap shares for months, while its share price steadily declined. The firm is investment manager M&G (LSE: MNG), which was spun off from parent Prudential last October. On 19 February, M&G shares hit their all-time high of 251.4p, but then collapsed in the Covid-19 crisis. Within a month, they had imploded to close at just 84.12p on 18 March. Of course, this crazy bargain didn’t last for long and M&G’s share price duly rocketed to 182.05p by 13 August.
At the end of October, M&G stock was back in the ‘cheap shares’ bargain basement, after diving to 146.65p. In November, they have bounced back hard, surging 36p (24.6%) to 182.7p as I write. Despite this steep gain, I still regard M&G stock as fundamentally undervalued today. Right now, this business with five million retail customers and 800 institutional clients in 28 markets is worth a mere £4.1bn. Amazingly, M&G shares trade on a price-to-earnings ratio of around 4.6 and an earnings yield of 21.8%. What’s more, as an income-seeking investor, I love M&G’s delightful dividends, as its shares offer a whopping cash yield of 6.5% a year. That’s more than twice the dividend yield of the wider FTSE 100.
Finally, M&G aims to generate at least £2.2bn of excess capital over the next three years. Guess who will trouser most of this huge sum, equating to more than half of M&G’s current value? That’s right, its patient owners: M&G shareholders. Hence, I’d eagerly buy M&G shares today, ideally in a tax-free ISA, to bank these generous tax-free dividends and future capital payouts!
Cliffdarcy has no position in any of the shares mentioned. 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.