Cheap shares: This quality stock has missed the FTSE 100’s 15% rally. I’d buy it today!

The FTSE 100 is having a great November, leaping 15% so far. This high-quality stock has been left behind, so I’d buy these cheap shares today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

What a month it’s been for UK shareholders, with stocks surging pretty much across the board. The FTSE 100 has soared during November, setting this up to be a record month for the index. As I write, the Footsie hovers just below 6,415 points, up a whopping 840 points (15%) since Halloween.

That’s the sort of gain I’d expect over two years or so, not a single month — and it’s been driven by good news coming from the US election and Covid-19 vaccine producers. Nevertheless, it’s been a grim year for the FTSE 100, with the index slumping 15% in 2020.What’s more, this recent rally hasn’t lifted all shares. Here’s another of my favourite stocks that has been pushed into ‘cheap shares’ territory.

Unilever is a global giant

Yesterday, I wrote about Reckitt Benckiser, a quality British business whose cheap shares have fallen by a fifth (20%) since their late-July high. Today, it’s the turn of another FTSE 100 heavyweight, RB’s biggest UK rival Unilever (LSE: ULVR). RB is a £47.9bn giant, but Unilever is an absolute beast in comparison, with a market value of £114.5bn. Indeed, Unilever’s rise in 2020 has catapulted it to become the biggest member of the FTSE 100 by market value.

Like RB and Royal Dutch Shell, Unilever is a highly successful Anglo-Dutch company. Currently, Unilever has dual headquarters in London and Amsterdam, but is planning to relocate solely to London later this year. Like RB, Unilever is a global leader in selling FMCG (fast-moving consumer goods) — the brands we all know and buy. Unilever’s product cupboard is second to none, containing over 400 brands, including Domestos bleach, Dove soap and body washes, Hellmann’s mayo, Knorr soups and stock cubes, Lipton tea, Lynx and Sure deodorants, Magnum and Ben & Jerry’s ice creams, and Persil laundry detergent. In short, look in your kitchen or bathroom shelves and you’re sure to find Unilever products. But I suspect its stock has been thrown into the ‘cheap shares’ bargain bin.

Cheap shares: This quality stock missed the November rally

As recently as 14 October, Unilever shares were riding high, hitting at a 52-week closing peak of 4,892p. That’s a far cry from when they plunged as low as 3,726p on 16 March, during the Covid-19 spring meltdown. As I write, Unilever’s share price stands at 4,367p, down 525p (10.8%) in less than six weeks. I find it hard to understand why Unilever stock would drop by over a fiver in 40 days, especially given the excellent 2020 the group has had. It makes me think that — in relative terms — that these are cheap shares today.

Of course, because Unilever is such a terrific business, its shares are never cheap, as such. At today’s price of 4,367p, they trade on a price-to-earnings ratio of 19.3 and an earnings yield of 5.2%. Trust me, these fundamentals are cheap for Unilever’s quality. Likewise, its dividend yield of 3.6% a year beats the FTSE 100’s 3.2% and, again, is attractive for Unilever. Since 1982, Unilever has never cut its dividend, which has risen by an average of 8% a year. Therefore, I would absolutely buy Unilever’s cheap shares today, ideally inside an ISA, to enjoy a lifetime of rising, tax-free dividends and future capital gains!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »