Value investing has had a record month. This cheap share is up 32{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}, but I’d buy now

With November almost over, what a month it’s been for UK shareholders. News of Joe Biden’s US election victory gave cheap shares an early boost. Then news of three effective Covid-19 vaccines lit the fuse and shares skyrocketed like fireworks. So far in November, the FTSE 100 index has soared […]

With November almost over, what a month it’s been for UK shareholders. News of Joe Biden’s US election victory gave cheap shares an early boost. Then news of three effective Covid-19 vaccines lit the fuse and shares skyrocketed like fireworks. So far in November, the FTSE 100 index has soared by 790 points since Halloween, up over 14{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} in four weeks in a record-breaking comeback. It’s a similar tale across the Atlantic, with the S&P 500, NASDAQ and Dow Jones Industrial Index all setting record highs in the past week.

The FTSE 100 has had a rough year

Although this month has seen a record-breaking rebound, the FTSE 100 has had a poor 2020. It’s down nearly 16{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}) this calendar year, even after November’s fireworks. With few big tech stocks and heavy weightings in banks, oil & gas, and miners, the Footsie has fallen out of favour among global investors. Nevertheless, it’s been an amazing month for value investors, as the cheap shares soared in November’s relief rally.

In fact, this month’s sudden switch from growth stocks into value shares was the ‘most violent’ on record, according to analysts. The arrival and distribution of Covid-19 vaccines in 2021 is expected to reignite global growth and boost corporate earnings. Even so, US growth stocks today trade at an average of 38 times earnings, according to Citigroup. Meanwhile, value stocks trade at an average of 17 times earnings. To me, this suggests a strong potential for higher returns over the next decade from cheap shares than from racy, popular stocks.

These cheap shares are up 32{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}, but still a bargain

Since the global financial crisis of 2007-09, growth/momentum investing has thrashed value investing, which has endured its worst slump in nearly 200 years. However, as the economy recovers, I see cheap shares in quality companies returning to favour, thanks to their low valuations and high dividends. For example, I’ve long argued that shares in well-known investment manager M&G (LSE: MNG) were too low-priced. Indeed, M&G’s stock was repeatedly among the cheapest FTSE 100 shares this year.

M&G was part of the giant Prudential, until it was spun off from its parent in October 2019. Now it’s a FTSE 100 company in its own right. Before the Covid-19 market crash, M&G shares hit an all-time high of 251.4p on 19 February. By 18 March, they had crashed to 84.12p, down two-thirds in a month. Yikes. By mid-August, these cheap shares had recovered to above 182p, but then nosedived again, hitting 146.65p on 30 October.

The FTSE 100 may be up over 14{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} this month, but M&G shares have more than doubled this bounce. On Friday, they closed at 193.45p, up 46.8p (31.9{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}) since Halloween. Even after gaining nearly a third in four weeks, I still see these cheap shares as worth buying. Today, M&G is worth a mere £5bn — an appetising snack easily gobbled up by a vastly larger rival. After all, its shares trade on a price-to-earnings ratio of around 4.6 and an earnings yield of 20.5{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}.

Lastly, M&G’s greatest attraction must be its delicious dividend yield of 6.2{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} a year, almost double the FTSE 100’s 3.2{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}. That’s why I’d happily buy these cheap shares today, ideally inside an ISA. Then I could enjoy years of tax-free dividends and future capital gains!

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

More reading

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.

The post Value investing has had a record month. This cheap share is up 32{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}, but I’d buy now appeared first on The Motley Fool UK.

Balmon Hyper

Next Post

Fendi strengthens its commitment towards environmental responsibilities

Mon Nov 30 , 2020
Fendi is inaugurating a new Sustainability section on its website, detailing Maison’s commitments around three pillars: environment, supply chain and community Fendi is spotlighting its commitment to environmental and social responsibility on 11 November in conjunction with the laying of the cornerstone for its Fendi Factory in Tuscany. This new […]