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These were the dogs of the FTSE 100 in 2020. But I’d buy these seven cheap shares!

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With 2020 drawing to a close, it’s not been a great year for UK investors. The FTSE 100 index has dropped 967 points — over an eighth (12.8%) — this year. Add in, say, 3% in cash dividends and the return from large-cap shares is still sharply negative in 2020. However, many FTSE 100 stocks performed far worse than the index over 2020.

Winners and losers in 2020

There were 99 shares in the FTSE 100 throughout 2020. Of these, 41 shares rose in price over the past year. The average gain across these 41 winners was 25.2%, or just over a quarter. If any investor’s portfolio had been focused solely on these 41 risers, then I’d salute their skill (or luck).

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At the other end of the scale lurk 58 Footsie stocks that have declined since 2019. The average loss across these 58 losers was over a sixth (17.9%). Many FTSE 100 heavyweights lie among these biggest losers. This explains why these 58 fallers have declined more, on average, than the index overall.

The dogs of the FTSE 100

Below is my list of the 10 biggest fallers in the FTSE 100 over 12 months. Veteran investors sometimes call these smashed shares ‘the dogs of the Footsie’. (There are 10 shares and yet only nine companies in this list, as Royal Dutch Shell has London-listed A and B shares.)

NatWest Group -32.7%

Standard Chartered -35.1%

Informa -35.1%

HSBC Holdings -35.8%

Royal Dutch Shell A -41.4%

Lloyds Banking Group -41.8%

Royal Dutch Shell A -43.6%

BP -45.8%

Rolls-Royce Holdings -53.1%

International Consolidated Airlines Group -61.6%

There are three obvious themes to this list. The first is big banks, of which there are four. Being leading lenders to British consumers and businesses in the worst economic meltdown for 300 years has not been pleasant in 2020. The four FTSE 100 banks’ share prices have slumped by between 32.7% at NatWest (formerly RBS) and 41.8% at Lloyds.

The second theme is oil. With oil prices crashing to unprecedented lows in 2020, the shares of BP and Shell have taken a savage beating. The third theme is air travel, with aero-engine maker Rolls-Royce and airline operator IAG being the two biggest dogs of the FTSE 100.

From dogs to stars?

When I look at these 10 FTSE 100 dogs, an age-old saying springs to mind: “Buy low, sell high”. As a long-term value investor, I’m happy to snap up beaten-down, unloved and unwanted stocks that other investors avoid. That’s because almost 34 years of investing have taught me that this year’s dogs often become next year’s stars.

With a strong economic recovery expected in the second half of 2021, these dogs’ earnings are set to soar next year, I feel. Hence, I’m willing to wager that a mini-portfolio of these 10 FTSE 100 dogs would beat most large-cap funds over the next one, three and maybe five years.

However, if I were building a personal portfolio from these 10 FTSE 100 shares for my family’s future, I would drop three stocks. I would lose Informa, because I think the events and exhibitions group will struggle until 2022-23. I’d also ditch RR and IAG, because airline miles flown might not recover to 2019 levels before 2023.

In short, I’d happily buy seven of these 10 cheap FTSE 100 shares, ideally inside my ISA for tax-free dividends and future capital gains. Fingers crossed for a better year for UK investors in 2021!

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings, Lloyds Banking Group, and Standard Chartered. 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.

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