The FTSE 100 index has got 2021 off to a good start so far. As I write, the Footsie stands at 6,817, up over 350 points (5.5%) since 2020. I hope this racing start continues, as I’m convinced the FTSE 100’s cheap stocks could be the best shares to buy in 2021.
Is the FTSE 100 too cheap?
When I look to the US, I see market bubbles and frothy stocks. Many assets are priced for perfection and beyond, including valuations of electric-vehicle makers, US tech stocks, and Bitcoin. With prices pumped up by day-traders, I’m sure the best shares to buy will not come from the S&P 500 this year.
Today, the valuation gap between the FTSE 100 and global stocks is the highest in a quarter-century. Way back in 1995, I was a young man in my first decade as an investor. Between 1995 and 2000, I witnessed the Footsie almost double, peaking on the millennium’s final day. Then came the dotcom bust of 2000–03, with the FTSE 100 more than halving by March 2003.
Billionaire Warren Buffett urges investors to buy cheap shares, saying, “Be fearful when others are greedy and greedy when others are fearful”. Today, I see too much greed for US stocks and too much fear of UK shares. That’s why I’m backing the FTSE 100’s cheap shares in 2021.
These were December’s best shares to buy
With the UK stock market bouncing back since ‘Vaccine Day’ on 9 November, some FTSE 100 stocks have soared over the past month. These were the the FTSE 100’s five best shares to buy 30 days ago:
Entain 38.2%
EVRAZÂ 15.3%
Just Eat Takeaway.com 13.5%
B&M European Value Retail 12.7%
Polymetal International 12.4%
Which share would I buy?
Entain, formerly GVC Holdings, is a gambling and sports-betting company and owner of Ladbrokes. Its US partner, MGM Resorts International, made a takeover bid for Entain on Monday, hence its surging shares. With much of Entain’s value now baked into the price, it’s obviously not one of the best shares to buy now.
EVRAZ is a global steelmaker and miner operating in Russia, Ukraine, North America, and elsewhere. Its biggest shareholder is a celebrity: Roman Abramovich, owner of Premier League team Chelsea FC*. EVRAZ has also been one of the five best shares to buy over five years. JET is a food delivery company known for its Just Eat brand in the UK. I regard JET as a classic hype stock or bubble share, because it scales up losses as it grows. I wouldn’t buy this share at anything like the current price, so I’m out.
B&M is a ‘cheap and cheeful’ retailer that has doubled in size over the past five years. I like B&M and think it’s a great business, but its shares trade on a chunky price-to-earnings ratio in the twenties and pay a lowly dividend yield of 1.8%. B&M would be #2 on my list of best shares to buy from this list. Polymetal is an Anglo-Russian miner of precious metals, registered in Jersey with headquarters in Cyprus. Its shares have tripled since September 2018 and climbed over 50% in 2020. Polymetal would be my #3 of these five best shares to buy.
Finally, as a value investor and income-seeker, I like the look of EVRAZ. Its bumper dividend yield of over 8.8% a year would go nicely inside my ISA for a tasty tax-free income!
*Disclosure: I support West Ham United, for my sins.