I expect UK shareholders are enjoying November so far — and with a sense of relief that share prices are finally rising again. After all, the FTSE 100 index slumped to a six-month low late last month, closing at 5,577 points on 30 October. Since then, a definitive outcome to the US presidential election — plus news of two efficacious Covid-19 vaccines — has sent shares soaring. As I write, the Footsie stands at 6,425 points, up almost 850 points (15.2%) since Halloween. Even so, the index has dropped roughly 1,120 points (14.8%) in 2020. That’s why I still see value hiding in the FTSE 100, including these two cheap shares.
Cheap shares #1: HSBC is bouncing back
HSBC (LSE: HSBA) shareholders have had a horrible year. First, the global mega-bank’s profits collapsed as it set aside billions of dollars to cover loan losses. Second, the UK banking regulator forced the Asia-focused bank to cancel its dividend, upsetting millions of shareholders. Third, the Big Four bank has been battered in the ongoing trade war between the US and China. Therefore, HSBC stock was hurled deep into the FTSE 100’s bargain bin.
On Halloween, I said I liked HSBC’s cheap shares, arguing that they were a snip at under 325p. As I write, they change hands at 389p, up a handsome 64p (19.7%) in 11 trading days. Happily, two recent events have moved in HSBC’s favour. Joe Biden won the US election and is expected to tone down the war of words that Donald Trump waged with China. And that news of two effective vaccines against Covid-19 point to a post-coronavirus future with banking profits.
Today, HSBC remains on my ‘deep value’ watchlist. After all, the Goliath among Britain’s banks actually made a pre-tax profit of $3.2bn in the third quarter. Furthermore, it has a fortress balance sheet with more than enough excess capital to absorb 2020/21 losses. And why wait until the return of the hefty dividend in 2021? I’d buy these cheap shares today, ideally inside an ISA, to enjoy future capital gains and the resumption of tax-free dividends.
#2: Banking on Lloyds for recovery
Ah, Lloyds Banking Group (LSE: LLOY), the perennial value share doomed to disappoint. I’ve written about Lloyds so often recently, what can I possibly say that I haven’t already said? On 30 October, I questioned why these cheap shares just kept on falling in value. At that time, the Lloyds share price was a lowly 27.95p, only about 4.4p above the 23.59p low it crashed to on 22 September. Like HSBC, Lloyds shares were in the doldrums due to concerns about the Covid-19 pandemic and loan losses. But they were all set to bounce hard.
As I write, the Lloyds share price is 35.64p, up a whopping 27.5% since my end-of-October article. In addition, Lloyds shares have leapt 30.7% over the past month, making this one of the best periods for long-suffering shareholders in many a year. However, as with HSBC, I see a brighter future for this Big Four bank. When the coronavirus pandemic recedes, Lloyds’ loan losses and bad debts will decline, pushing the bank back into profit. Actually, Lloyds already made a £1bn pre-tax profit in the third quarter. When Lloyds’ cash dividends return in 2021, it’ll be far too late to buy these cheap shares. Hence, I’d buy Lloyds stock today, banking on a strong recovery in 2021!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. 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.