It’s been so far, so good for the FTSE 100 in 2021. As I write, the index trades around 6,855 points, up 3.7% today, and 6.1% in three days. That’s a solid start and may reflect investor relief over the last-minute Brexit deal. For me, it may indicate that global investors have finally realised that UK shares are too cheap. After all, the valuation gap between the FTSE 100 and global stocks is at a 25-year high. This decent start may bode well for the year as a whole, per the City saying, “As goes January, so goes the year”.
UK shares have boomed since October
On 6 October, the FTSE 100 closed at 5,949 points. Three months later, it has leapt over 900 points, rising by almost a sixth (15.2%). On Vaccine Day, (9 November), the first effective Covid-19 vaccine was revealed. Since then, cheap UK shares have staged a major comeback, with November the second-best month for the FTSE 100 since 1984. That partly made up for an awful year overall.
These five stocks missed the party
Though the Footsie has surged since October, not all its members have done quite so well. Of 101 shares in the index, 84 have gained since 6 October. Thus, 17 stocks have declined over three months. Among these 17, losses vary from 0.4% to 18.5%. Here are the five worst of these losing UK shares:
Unilever (Consumer goods) -7.6%
Pennon Group (Water & waste utility) -7.8%
Reckitt Benckiser (Consumer goods) -9.5%
Sage Group (Software) -18.5%
When I look at this list of laggards, I’m taken aback. Frankly, I’m surprised these UK shares have all fallen over the past quarter. For me, all five of these British businesses are success stories. If you forced me to buy all five stocks today, I wouldn’t put up a fight.
Which two losers would I buy today?
Among these five fallers are two exceptional Anglo-Dutch companies that I’d happily invest in today.
The first, Unilever, is the giant of the two. At its current share price of 4,475p, Unilever has a market value of £119.2bn, making it a super-heavyweight among UK shares. Having invested in equities since 1986, I know Unilever to be one of the FTSE 100’s biggest successes. If you’d put Unilever into your portfolio at pretty much any time over the past three decades, you’d be chuffed with the result. For example, since the lows of the global financial crisis in March 2009, Unilever shares are up over 260%. Today, this giant among UK shares trades on a price-to-earnings ratio of 22 and an earnings yield of 4.5%, and pays a dividend of 3.3% a year. That is a fair price for a high-quality business, which is why I’d happily buy Unilever today.
I also like the look of Unilever’s ‘little cousin’, Reckitt Benckiser. In many ways, the two businesses are very similar: both sell the popular consumer goods and brands that fill up British cupboards in kitchens and bathrooms. However, RB is much smaller in scale. At the current share price of 6,755p, it is valued at £47.81 — still a big player in its own right. RB’s dividend yield of 2.6% is lower than Unilever’s, but still a useful addition to a diversified income portfolio. That’s why I’d buy its shares today, ideally inside an ISA, to enjoy tax-free dividends and future capital gains.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group, Sage Group, and Unilever. 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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