These cheap shares missed the November boom. I’d buy them for a 2021 recovery

This cheap shares have been left behind while other shares surged in November. They’ve had a poor 2020, but I’m keeping an eye put for a rebound in 2021.

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.

Syringe and vial on blue background

Image source: Getty Images

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.

As I write, London Stock Exchange trading is about to close for November. And what a memorable month it’s been, as cheap shares soared in response to good news after good news. First, Joe Biden defeated Donald Trump to win the US presidential election, giving US stocks and UK shares an early bounce. Then news of effective Covid-19 vaccines from Pfizer/BioNTech, Moderna, and AstraZeneca/Oxford sent share prices surging.

These positive developments set November up to be a record month for UK shares. As I write, the FTSE 100 has leapt by 720 points (12.9%) in November, its best monthly performance since its inception in 1984. Likewise, US stocks have staged a big comeback, with the S&P 500 up 335 points (10.2%) since Halloween. However, though it’s not been a great year for the Footsie, I see deep value hidden in the FTSE’s 100 cheap shares.

The FTSE 100 has a year to forget

As I said, the Footsie hasn’t had a great 2020 — in fact, it’s been a pretty grim year for the index. It’s dropped close to 1,250 points in 2020, which is a loss of a sixth (16.5%) this calendar year. That’s one of the worst yearly performances in the index’s 36-year history. The only two years worse than 2020 this millennium were 2008 (-31.3%, global financial crisis) and 2002 (-24.5%, dotcom bust and 9/11). Despite this November surge, many investors will look back on 2020 with regret, I imagine.

Of course, not all shares have fallen in 2020 and the range of returns across the FTSE 100 is widely distributed. As I revealed earlier today, 39 FTSE 100 shares have risen over the past 12 months. The remainder have all lost value, with the average decline among the losers being a painful 17.8%. Nevertheless, I see these losing stocks — especially the worst of these laggards — as a happy hunting ground for cheap shares set for recovery in 2021.

I’d buy GSK’s cheap shares today

One of my favourite cheap shares has had a grim 2020. In fact, down at #81, it’s in the bottom 20 of FTSE 100 stocks by one-year price performance. That company is global pharma giant GlaxoSmithKline (LSE: GSK). I’ve owned GSK shares for most of the past 30 years. Also, two close relatives have worked for the group, so I know this great British business very well. Alas, GSK has disappointed shareholders, with its share price down more than a fifth (21.9%) over the past 12 months.

I’m surprised that GSK has been one of the dogs of the FTSE 100 in 2020. After all, it has leading franchises in vaccines, immunology, oncology (cancer), HIV/AIDS, and respiratory treatments. While healthcare stocks globally have boomed this year, GSK wasn’t invited to the party. In fact, its share price crashed from 1,779p at the end of 2019 to close at 1,370p today. That’s a fall of over £4 a share (23%). Having peaked at 1,857p on 24 January, collapsed in the spring and then rebounded, GSK’s price has been in decline since mid-May.

Nevertheless, as a value investor, I’d happily keep buying GSK’s cheap shares today. In historical terms, they really are cheap, trading on a price-to-earnings ratio of below 11 and an earnings yield of 9.1%. Even better, the steady 80p-a-share yearly cash dividend equates to a hefty annual dividend yield above 5.8%. That’s almost twice the FTSE 100’s yield of 3.2%. Hence, I will continue to reinvest my GSK dividends into more shares while they remain cheap. Buying more shares now at low prices is exactly what I need to do to retire rich with a passive income!

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 owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. 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

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »