When I view the FTSE 100 chart for 2020, I call it ‘the Big W’. From March, the Footsie lurched south, tracing the W’s first downward stroke. An upward stroke was drawn from March’s lows to early June. Then came a decline until Halloween, followed by a rebound last month. November’s bumper rebound — the FTSE 100 rose by (12.4%) — was the index’s second-best month in 36 years. But several cheap shares have been left behind in 2020 — and I still see value in some stocks.
The FTSE 100’s 30% comeback
The FTSE 100 hit its 2020 closing high on 17 January, peaking at 7,674.6 points. As Covid-19 spread, the index collapsed, crashing to close at 4,993.9 on 23 March. That’s a fall of more than a third (34.9%) in two months. Today, the Footsie hovers around 6,521.48, up more than 30% since this market meltdown. But many cheap shares have gone nowhere for ages — and some stocks keep falling.
Within the FTSE 100, I found that 76 of these stocks gained over the past six months. The highest increase was 62% and the lowest a mere 0.1%. Across these 76 gainers, the average rise was 17.1%. However, 24 stocks lost value over this period. The biggest loss was 20.5% and the smallest was 0.5%. The average decrease across all 24 fallers was 8.4%. Today, I’ve been bottom-fishing among these 24 cheap shares.
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These cheap shares miss out
Among the FTSE 100’s 10 worst performers over six months are three cheap shares that missed the rising tide. These great British businesses are British American Tobacco (LSE: BATS), down 8.8% in six months, GlaxoSmithKline (LSE: GSK), down 15.3% and BP (LSE: BP) down 20.5%. I’ve written about these three value stocks repeatedly in recent months. When I began this article, I set out to avoid mentioning any of these Goliaths. Yet fundamentals once again push me in the direction of deep-value stocks primed to rebound in 2021.
Two of these three cheap shares are no-go stocks for ethical and green investors. BATS is the world’s second-largest cigarette manufacturer, so its dividend yield of 7.4% a year is banned for ethical investors. Likewise, as one of the world’s energy behemoths and a global polluter, BP is vetoed by environmental investors. Yet its colossal dividend also helps to underpin the FTSE 100’s income yield.
GSK is ready to rebound in 2021
For the record, GSK is one of my favourite cheap shares. Currently, it’s the only listed stock I directly hold in my own name. I’ve been a GSK shareholder for most of the past 30 years, watching its ups and downs since the late 80s. Right now, I think GSK is about as overlooked, unloved, unwanted and undervalued as at any point in this millennium.
I stick with GSK because it’s what I call an SLR share. It offers Safety (it’s a £70.1bn giant), Liquidity (it’s a highly liquid, easily traded stock) and Returns (its solid dividends attract me). Today, the GSK share price stands just below 1,388p. This puts its shares on a price-to-earnings ratio of 11 and an earnings yield of 9.1%. The 80p-a-share yearly dividend equates to a dividend yield of over 5.7%. That’s almost twice the FTSE 100’s dividend yield — and it’s why I keep buying GSK shares hoping for a potential 2021 recovery!
