After a sharp decline in March 2020, UK shares have bounced back remarkably in the months since the first onset of the Covid-19 pandemic.
The primary UK stock index, the FTSE 100, has gained more than 26% since its low of 4,993p on 23 March last year, as optimism around vaccination programmes drives the latest stock market rally.
While there may be a correction in the index in response to the latest rally, I believe there are still some cheap UK shares that I would buy to add to my portfolio or Stocks and Shares ISA.
These are two FTSE 100 constituents with a long history of providing returns to investors.
Spring clean
Reckitt Benckiser (LSE:RB) is a company few consumers may have heard of, but many buy their products on a regular basis. It is a leading consumer goods company with a portfolio of brands including Dettol, Clearasil, and Nurofen. The company’s sales have shot up during the pandemic, due to having a primary focus of hygiene and health products.
Reckitt lifted its full-year revenue guidance in October after its third-quarter sales jumped as the pandemic boosted demand for its disinfection brands. In its most recent earnings report, sales were 12.4% higher in the year to date at £10.4bn. I can see this demand continuing for years to come as many of our hygiene habits could be here to stay.
The Reckitt share price has not been performing as well as its sales would suggest, however. The stock has slumped more than 16% in the last six months, and only gained around 5% in the last five years.
That said, Reckitt is very much a defensive stock and with further volatility potentially coming down the line for the stock market, it is certainly still one I’d add to my portfolio.
On the defensive…
Defence contracting company BAE Systems (LSE:BA) is another cheap UK share I think could provide my portfolio with decent returns in the long term.
The company has come through the Covid-19 crisis relatively unscathed in comparison to some of its fellow FTSE 100 constituents in terms of sales, with no major sign of a reduction in demand for its products from the governments it sells to.
BAE has consistently increased its dividend payout every year since as far back as 2003, and while there is a possibility of this not being raised further in 2021 it should be maintained at the very least.
Trading off a price-to-earnings ratio of 10 and with a dividend yield of just under 5%, to me this share seems to provide value as an income stock.
The market suggests otherwise at the moment, with the shares now down almost 27% in the last year. There is risk involved in that if a handful of countries were to reduce their defence spending, BAE’s revenue would be adversely affected.
However, looking at current trends I don’t see that happening over the next five years and would buy BAE shares for my portfolio today.