In the first few weeks of 2022, the FTSE 100 got off to a good start. At its 52-week high of 7,687.27 points on 10 February, the index was up over 300 points (+4.1%) since 2021. But then Russia invaded Ukraine and the index dived. The Footsie crashed below 7,000 points three weeks ago, but then rebounded. On Friday, it closed up 1.3% so far in 2022. Given that a tragic European conflict is raging, I see any gain as a plus. Nevertheless, I’m still finding many cheap shares lurking in the FTSE 100 today.
Two cheap shares I’d buy
As a veteran value investor, I’m constantly looking for cheap shares: stocks trading on modest price-to-earnings ratios and market-beating earnings yields, with chunky dividend yields. Also, when hunting beaten-down stocks, I prefer ‘fallen angels’ with solid business models and future prospects.
The first of the two cheap shares I’d buy is Unilever (LSE: ULVR). At their all-time high, shares in the consumer goods giant peaked around £52 in August 2019. On Friday, Unilever stock closed at 3,356.5p, more than a third (-35.5%) below this peak. What’s more, Unilever shares are down 14.9% in 2022 and 18.1% over the past 12 months. At this level, the Anglo-Dutch group is worth just £86.2bn. Right now, this FTSE 100 firm’s shares trade on a historically low price-to-earnings ratio below 17.4 and an earnings yield of 5.8%. What’s more, the stock offers a dividend yield of 4.4% a year (1.1 times the FTSE 100’s cash yield). To me, these fundamentals suggest that this quality business — a long-term winner for decades — is too cheap today. Hence, despite its recent troubles, I’d buy and hold ULVR for my family portfolio.
Should you invest £1,000 in ITV right now?
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Cheap stock #2: ITV
The second of my cheap shares has endured a particularly brutal start to 2022. Shares in ITV (LSE: ITV) have crashed from 110.55p on 31 December 2021 to 81.4p on Friday. That’s a collapse of 29.15p — or 26.4% — in under three months. What’s more, ITV shares are down 24.7% over six months, 33.4% over one year, and a whopping 62.8% over five years. As a result, the shares are the second-worst performer in the FTSE 100 index over the past half-decade. Yikes.
Five years ago, on 31 March 2017, the ITV share price closed at 218.9p. Now it’s 81.4p. Normally, this would indicate to me that the company might be more of a basket case than a ‘fallen angel’. But from my perspective, ITV seems to be doing reasonably well as a niche media business. Indeed, on 3 March, it released its full-year results for 2021. The company’s yearly revenue surged 24% to a record high of nearly £3.5bn. As a result, ITV’s operating profit jumped to £519m, 46% ahead of 2020’s result. Yet this business is valued at under £3.3bn today.
One reason for ITV’s recent share slump is that analysts are worried about it raising spending on future content. But its cheap shares trade on a price-to-earnings ratio of 8.7 and an earnings yield of 11.5%. Also, the dividend yield of 4.1% a year is marginally higher than the FTSE 100’s cash yield. To me, these depressed fundamentals suggest that ITV is too cheap, so I’d happily buy this FTSE 100 share today.
