What a week it’s been for fans of the world’s leading cryptocurrency, Bitcoin (BTC). Before today, the Bitcoin price was heading ‘to da moon’ (as Bitcoin fans say). On Tuesday, it rose roughly $1,000, climbing above $19,000. Yesterday saw more frenzied price action, as it jumped again. It leapt to over $19,500, close to its all-time high just short of $20,000 seen in December 2017. However, the price nosedived today, dropping close to $16,300 in early-morning trading. As I write, BTC trades around $16,875, down roughly 13.5% from yesterday’s high. That’s still high, of course, but here’s why I’d rather keep buying cheap shares than trading Bitcoin.
Bitcoin is for speculators, not investors
As a former mathematician, my expertise in this field lies in cryptography (code-breaking) and not cryptocurrencies per se. Nevertheless, I well understand the crypto concept and that of a blockchain (or highly distributed ledger). However, ever since Bitcoin exploded onto the investing scene in 2009, I’ve regarded it as speculation, rather than an investment. Yes, Bitcoin’s value has soared immensely in the 11 years it has been in existence — and it has more than doubled in value in 2020.
But my big problem with it is that, as with gold and unlike many mainstream investments, it pays no income. Its intrinsic value is unknown and is also subject to uncommon levels of frenzied speculation. Indeed, the cult-like belief in Bitcoin expressed by its most zealous supporters reminds me of investor fervour right before the 2000/03 dotcom crash. That’s why I’d much prefer to stick with buying cheap shares for their passive income and capital gains.
Cheap shares: this stock won’t go up in smoke
Now from one of the most modern and innovative inventions to one of the most boring investments imaginable — the ‘old economy’ cheap shares of Imperial Brands (LSE: IMB). As world’s fourth-largest tobacco company, Imperial certainly fails to qualify as an ethical investment. But this British business has been around since 1901. For 119 years, it has survived countless global crises, only to keep growing. It produces tobacco and cigarettes from more than 50 factories worldwide, selling around 330bn cigarettes per year across more than 160 countries. In short, Imperial is embedded deep in the global economy. It’s also had a pretty good 2020, as its final results show.
Just over four years ago, Imperial’s share price reached a new peak of 4,130p. However, by the end of 2019, its shares had declined to 1,869p. They then collapsed with the rest of the market in the March meltdown, before leaping back to 1,725p at end-April. Since then, Imperial’s cheap shares have been getting cheaper, falling to a 52-week intra-day low of 1,203p at the end of October. On Thursday, they closed at 1,420p, valuing the business at a mere £14bn. I see this entry point as a genuine bargain.
I’d buy this value share today
For me, these cheap shares are a solid buy for their juicy dividend income and lowly rating. They trade on a price-to-earnings ratio of 9.35 and an earnings yield of 10.7%. What’s more, Imperial shares pay quarterly cash dividends to shareholders, adding up to a forward dividend yield of 9.7% a year. I think that huge passive income is way too generous to turn down. That’s why I’d forget Bitcoin and buy these shares today, ideally, inside an ISA, to enjoy a tax-free passive income and capital gains!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.