October was pretty grim for UK shareholders, with the FTSE 100 index diving nearly 290 points (4.9%). However, November has seen a dramatic turnaround, with the index leaping by almost 750 points (13.4%) since Halloween. This bounce-back was driven by two events: first, Joe Biden winning the US presidential election. Second, news four days ago of a Covid-19 vaccine with over 90% efficacy sent share prices soaring.
Despite this surge, the Footsie has lost 1,220 points (16.2%) this calendar year. That’s why I see many cheap shares still on sale. Here are two I’d eagerly buy right now:
Cheap shares: Vodafone is a dividend dynamo
The first of my cheap shares is a global leader in telecoms: Vodafone Group (LSE: VOD). At the turn of the century, Vodafone was the largest company in Europe, but then came the dotcom bust. Yet Vodafone remains a powerhouse, with over 625 million customers in 65 countries, mostly in Europe and Africa. At their 52-week high on 13 November last year, Vodafone shares closed at nearly
Today, Vodafone’s share price is 119.2p, up a tidy 16.2p (15.7%) in November. With this global Goliath’s market value only £28.2bn, I see Vodafone shares as still on sale. After all, they are down more than a quarter (27.7%) over 12 months. As a value investor, I’m mostly drawn to Vodafone’s cheap shares for their delightful dividend yield, currently around 6.7% a year. With such high cash returns few and far between, I’d happily buy Vodafone today to bank decades of bumper dividends and future capital gains.
M&G: Money & Gains to come?
I’ve been banging on about the second of my cheap shares for months, while its share price steadily declined. The firm is investment manager M&G (LSE: MNG), which was spun off from parent Prudential last October. On 19 February, M&G shares hit their all-time high of 251.4p, but then collapsed in the Covid-19 crisis. Within a month, they had imploded to close at just 84.12p on 18 March. Of course, this crazy bargain didn’t last for long and M&G’s share price duly rocketed to 182.05p by 13 August.
At the end of October, M&G stock was back in the ‘cheap shares’ bargain basement, after diving to 146.65p. In November, they have bounced back hard, surging 36p (24.6%) to 182.7p as I write. Despite this steep gain, I still regard M&G stock as fundamentally undervalued today. Right now, this business with five million retail customers and 800 institutional clients in 28 markets is worth a mere £4.1bn. Amazingly, M&G shares trade on a price-to-earnings ratio of around 4.6 and an earnings yield of 21.8%. What’s more, as an income-seeking investor, I love M&G’s delightful dividends, as its shares offer a whopping cash yield of 6.5% a year. That’s more than twice the dividend yield of the wider FTSE 100.
Finally, M&G aims to generate at least £2.2bn of excess capital over the next three years. Guess who will trouser most of this huge sum, equating to more than half of M&G’s current value? That’s right, its patient owners: M&G shareholders. Hence, I’d eagerly buy M&G shares today, ideally in a tax-free ISA, to bank these generous tax-free dividends and future capital payouts!