The last three weeks have been very positive for UK investors, with shares rising pretty much across the board. Since October, the FTSE 100 has surged in response to various pieces of good news. On Monday, the Footsie was around 770 points (13.8%) ahead in November, its best month for many a year (and heading for a monthly record). Some beaten-down cheap shares in the FTSE 100 have surged dramatically in November. Indeed, there are 23 FTSE 100 shares up by 20% or more over the past 30 days.
Of course, a rising tide doesn’t necessarily lift all stocks. Some cheap shares in quality companies have been left behind in this surge. At the other end of the FTSE 100 are 22 laggards whose share prices have actually fallen over the past month. Here’s my favourite among these FTSE 100 stragglers.
These cheap shares have missed the recent rally
If you haven’t heard of Reckitt Benckiser (LSE: RB.), then I expect you’re familiar with many of its consumer brands. Reckitt Benckiser (RB) is a powerhouse in FMCG (fast-moving consumer goods). These are the staples that we buy to line the shelves of our bathrooms and kitchens. RB’s most popular UK brands in hygiene, health and nutrition include Cillit Bang laundry detergent, Clearasil skin cream, Dettol and Lysol disinfectants, Durex condoms, Finish dishwasher tablets, Gaviscon for heartburn, Harpic toilet cleaner, and painkiller Nurofen. All are market-leading products in their own right, with millions of us buying them for our homes. Yet RB’s cheap shares have been overlooked in the recent market mini-boom.
At Monday’s close, RB’s stock stood at 6,550p a share. This values this successful Anglo-Dutch corporation at £47.7bn, making it a FTSE 100 heavyweight. However, RB’s share price has been far higher this year, hitting a 52-week closing high of 7,960p on 29 July. Since reaching this peak, RB’s cheap shares have declined by 1,410p (17.7%). To me, this seems crazy, because the underlying business has been going great guns in 2020. After all, RB does make leading household cleansers and detergents, sales of which have soared due to Covid-19.
Reckitt Benckiser is crushing Covid-19
Furthermore, RB’s cheap shares have slipped 450p (6.4%) since 23 October, underperforming the wider FTSE 100 by a wide margin. I find this surprising, given its latest results. In the third quarter, RB reported record sales growth of 6.9% and forecast a double-digit improvement in revenue growth for 2020. All this extra hand-washing and sanitising boosted RB’s quarterly sales to £3.5bn. However, sales of contraceptive devices, personal-care products, medicines, and formula milk did lag behind the wider group.
RB is having a record year, but analysts worry that sales of cleaning products will slip post-coronavirus. I’m not so sure, as I see Covid-19 precautions lasting at least into 2022. With a price-to-earnings ratio of around 20 and an earnings yield of roughly 5%, these are not cheap shares in the conventional sense. Then again, a dividend yield of 2.7% a year that is set to grow should interest income investors.
In summary, quality doesn’t come cheap — and Reckitt Benckiser stands out to me as a great British success story. Therefore, I would happily buy it today, ideally inside an ISA, to enjoy years of solid, tax-free dividends and future capital gains.