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The FTSE 100 is up 10% in 6 months. Do I keep buying?

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Before Halloween 2020, the FTSE 100 index was looking rather sickly. On Friday, 30 October 2020, the Footsie closed at 5,577.27 points, almost exactly 2,300 points below its 22 May 2018 closing high of 7877.45. Back then, investors were terrified of the economic impact of prolonged Covid-19 lockdowns, so UK shares were down in the dumps.

But then came ‘Vaccine Monday’ (9 November 2020), when news of effective coronavirus vaccines had the world cheering. This hugely positive development produced a powerful relief rally that sent stock prices soaring worldwide.

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The FTSE 100’s big comeback

As I write on Thursday afternoon, the FTSE 100 hovers around 7,154.12 points. That’s just below the 52-week high of 7,217.54 it hit only yesterday. Thus, the blue-chip index has surged by over 1,575 points since Halloween. That’s a handsome return of almost three-tenths (28.3%) since 30 October. However, over the past six months, the FTSE 100 is ahead by only 600 points or so. That’s a gain of 9.3% since 17 December 2020 — a far more modest return than that seen since Halloween. So have I missed the boat to buy cheap UK shares?

Not all UK stocks have soared

For me, there is still value to be found in the FTSE 100 index, even now. Indeed, I keep bargain-hunting within this index for undervalued, unloved, and unwanted UK shares. That’s because this strongly rising tide hasn’t lifted all boats equally in the Footsie. Allow me to show you what I mean.

Over the past six months, 83 out of the 101 shares in the FTSE 100 (82.2%) have risen in value. That shows the breadth of the market rally since just before Christmas. Across these 81 winners, half-year gains range from 70.8% to a tiny 0.1%. The average gain across these winners is roughly a seventh (14.3%).

However, this still leaves us with 18 losers: UK shares that have failed to ride the relief rally since mid-December. Among these fallers, losses range from a mere 0.1% to a nasty 28.1%. The average loss across these 18 losers is 6.2%. So, not all shares have benefited from the FTSE 100’s latest comeback.

I still see the Footsie as cheap today

Just before the London market’s value-driven surge since November, the FTSE 100 index was very, very cheap. Indeed, on some measures, UK shares were the cheapest they had been relative to the rest of the world for nearly 50 years. Hence, even after this big bounce-back, I still regard the Footsie as relatively cheap today.

Of course, I could be completely wrong. Right now, the entire world is balanced on a knife-edge. If global vaccination programmes are effective, then serious illnesses and deaths from Covid-19 infections should drop dramatically. However, if more new variants emerge, or vaccination rates slow, then we may endure further infection waves and lockdowns. This would be disastrous for the global economy.

That said, after the hardship of the past 15 months, I still believe — on balance — the world is poised for a strong economic rebound. That’s why I continue to look for cheap shares in the FTSE 100. As a veteran value investor, I’m particularly keen to buy into well-run companies with strong balance sheets, huge cash flows, and fat cash dividends. I see no shortage of these high-yielding shares in the Footsie today. That’s why I keep betting my family wealth on a continued recovery in UK share prices in 2021/22.

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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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