To date, November has been a marvellous month for UK shareholders, especially those who bought cheap shares in late October. The FTSE 100 index rose for eight days in a row — from Monday, 2 November, until yesterday — before easing back today. As I write, the Footsie stands at 6,302 points, up over 725 points (13%) so far this month.
However, it’s been a grim year for the UK market, with the main index losing a brutal 1,240 points — a sixth (16.4%) — since the end of 2019. Thus, I can’t help thinking that the FTSE 100 is cheap in historical terms. What’s more, I can see clear value in several quality companies whose stocks have been hurled into in the ‘cheap shares’ bin. Here are two cheap shares I’d gladly buy today.
Cheap shares: Will Shell be well in 2021?
Royal Dutch Shell (LSE: RDSB) is one of the very worst-performing FTSE 100 shares in 2020. At the end of 2019, Shell shares traded at 2,239.5p, before rising to 2,342.5p by 6 January. Alas, as the Covid-19 pandemic grew, Shell’s share price plunged to 916.8p by 18 March. Shell stock then soared to 1,462.8p by 8 June, before crashing again. In a sickening descent, the share price collapsed to a 20-year low of 845.10 on 28 October — just two weeks ago. At that point, I thought it was a good to dig deep and buy Shell’s cheap shares.
As I write, Shell shares are 1,107.6p, up a whopping 27.9% in just two weeks. That’s an excellent return in a fortnight, but I suspect there is more to come. After all, Shell is a gargantuan global business, employing 80,000 workers in over 70 countries. In 2019, Shell’s revenues were nearly $345bn (£262bn), but its market value is a lowly £76.6bn today. Admittedly, Shell slashed its yearly dividend by two-thirds in the spring. But they still have a dividend yield approaching 5%, which will rise over time. When the world economy moves beyond Covid-19 and oil demand rises, Shell shares will look like a bargain at today’s prices. That’s why I’d buy Shell today and hold these cheap shares for the long term.
I love the look of Legal & General
The second of my cheap shares to perform handsomely this month is a household name: Legal & General (LSE: LGEN). Legal & General is a UK market leader in protection and savings, having been around for 184 years. It’s also a well-respected brand with over 10 million customers worldwide. L&G manages over £1trn of investors’ wealth, making it one of Europe’s biggest asset managers. Yet, with fears growing of a second Covid-19 lockdown, these cheap shares became ridiculously cheap during September and October.
On 28 October, L&G shares closed at 182.35p, which seems a crazily low price to me. At this point, shares in this great British business traded on a price-to-earnings ratio of 9 and an earnings yield of 11%. For me, that was the bargain of a lifetime. Today, L&G’s share price hovers around 229p, up over a quarter (25.6%) since 28 October. Yet, even after November’s fireworks, I see L&G shares as too low-priced for part-ownership of an widely admired, quality business. Hence, I’d happily buy these cheap shares today, ideally inside an ISA, to enjoy decades of tax-free dividends and capital gains!
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- 2 AIM shares and 1 FTSE 100 stock I’ll potentially buy in November
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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