News of imminent Covid-19 vaccines with over 90% success rates boosted a stock market rally last week and this. It came after the markets welcomed Joe Biden as America’s next president after a prolonged period of election uncertainty. In response, the FTSE 100 financial index has been skyrocketing through November, rising 786 points (14%) so far. This excitement is propelled by cheap shares that are seeing renewed interest.
The vaccine news came from pharma star Pfizer and its partner BioNTech with hopes of distribution before the year end. But with Moderna‘s vaccine announcement yesterday, alongside other manufacturers sending out positive signals, there’s renewed hope for the downtrodden stocks of 2020. It may also mark the beginning of the end to so much uncertainty overwhelming the markets this year.
FTSE 100: going long on cheap shares
The ups and downs of the pandemic fallout have divided the FTSE 100 throughout 2020. There are high-flying stocks reaching astronomical valuations versus oppressed companies that investors are steering clear of. But now I think it’s time to take another look for cheap shares that could rise again and make shareholders rich. Buy and hold is my favourite investment strategy, and the FTSE 100’s quality range of dividend stocks make this a lucrative area from which to pick cheap shares.
Time to buy Vodafone shares?
One of these is Vodafone Group (LSE:VOD). Its shares were up yesterday morning on better than expected interim results. Revenue declines are thankfully slowing across its key business areas, and it’s proven more resilient to the pandemic than projected. During this six-month period to September, the FTSE 100 blue-chip swung to a €1.6bn net profit, compared with a €1.9bn loss year-on-year.
Despite positive signs of underlying momentum, store closures and the halt to travel disrupted some of its income streams. Vodafone travellers often incur high roaming charges, which is one lucrative revenue stream the FTSE 100 telecoms giant has lost out on this year. Other than that, its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 1.9% to €7bn. Its full-year projections include free cash flow of at least €5bn and EBITDA ranging €14.4bn-€14.6bn. This all points to an overall improvement and strength at its core.
Shareholders who bought at the end of October are already seeing a 20% bump in their investment. That’s an impressive return for so-called ‘boring’ cheap shares often avoided as perpetual ‘value traps’. Particularly with an impressive dividend yield on top.
Banking dividends from Vodafone
Vodafone’s dividend is sitting at a 6.4% yield on today’s share price, yet its share price remains down, close to 17% year-to-date. Understandably, some investors may question its decision to continue paying dividends. Particularly as so many FTSE 100 stocks have halted theirs. However, with cash in the bank and profits coming in, the dividend makes a welcome addition and ensures Vodafone remains appealing in a long-term portfolio.
Vodafone is investing heavily in 5G technology and, for this reason, I think it could be in a strong position of growth in the years ahead. I think 5G will ensure it continues to attract customers and improve its profits. Pricing will always be key to keeping customers and, this being a cutthroat industry, the FTSE 100 giant will need to remain competitive on price.
I like cheap shares and would happily buy Vodafone stock as an addition to a long-term portfolio.
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Kirsteen 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.