With November heading to a close, we look back with relief on a remarkable month for UK shares and global stocks. As I write, the FTSE 100 hovers around 6,381 points, up 805 points since Halloween. That’s a bumper monthly gain of more than a seventh (14.4%) — the highest since the Footsie started in 1984. It’s a similar story worldwide, with the US S&P 500 ahead almost 370 points (11.3%) and the European Stoxx 600 index leaping 51 points (14.9%) in November. But I believe there are plenty of cheap shares still lurking in the FTSE 100.
It’s been a bruising year for UK shares
Although stocks have surged globally in November, it’s been a tough year for UK shareholders. Even after this month’s record rise, the FTSE 100 remains more than 1,160 points down in 2020. In other words, the UK’s main market index has dived by 15.4% since 2019. This makes 2020 one of the Footsie’s worst years. What’s more, many shares have been crushed by Covid-19, hurling them into the ‘cheap shares’ bin.
To show you how some shares have suffered, I reviewed all 99 FTSE 100 members in the index for at least a year. Here’s what I found regarding their one-year performances:
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- Of these 99 shares, only 39 have gained in value in the past 12 months.
- The average gain for these 39 winners is 20.7%.
- The best performer is up a tremendous 107.9% (and in the midst of a global pandemic, wow).
- Thus, 60 shares have lost value in 2020.
- The average loss for these 60 losers is 17.8%.
- The worst performer has crashed by a staggering 58.9% (because it’s an airline).
- The average loss across all 99 shares is a modest 2.7%.
Note that although the average one-year loss across all 99 shares is 2.7%, the index itself is down 12.4% over 12 months. That’s because the FTSE 100 is a capitalisation-weighted index, where companies with the highest market values drive the index more than smaller members. And what an awful year it’s been for the FTSE 100’s heavyweights and their cheap shares.
The FTSE 100’s 10 biggest losers
For the record, these are the 10 worst-performing shares in the FTSE 100 over the past 12 months. You’ll recognise some very big names in this list.
HSBC Holdings -30.8%
Melrose Industries -31.9%
Informa -32.7%
Standard Chartered -34.1%
BT -37.2%
Lloyds Banking Group -39.6%
Royal Dutch Shell B -41.3%
BP -46.3%
Rolls-Royce Holdings -56.2%
International Consolidated Airlines Group -58.9%
In this list are three big banks, two oil & gas Goliaths, an aero-engine maker and the owner of British Airways. Of course, it’s no surprise that these economically sensitive stocks have all got much cheaper in 2020.
Cheap shares: Fall hardest, bounce highest?
When looking at buying into bombed-out shares, I think of rubber balls and wonder, “Will the hardest fallers bounce back hardest?” That’s because 33 years of experience has taught me that this year’s worst losers often turn out to be next year’s biggest winners. Hence, I see this table as a target-rich environment of potential champions in 2021.
If I had to pick, say, three cheap shares from this list, then they would be Lloyds, Shell, and BP. I wouldn’t go near Rolls-Royce and ICAG, because I can’t see a return to profitable air travel for several years to come. Also, Shell, and BP pay chunky cash dividends — and I’m sure Lloyds’ payout will return in 2021. In summary, I’d buy these three losing stocks today for their lowly valuations and to enjoy decades of delicious dividends for a passive income!
