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Forget buy to let. I’d buy these cheap FTSE 100 shares to make a fortune instead

Andy Ross
·3-min read
Screen of price moves in the FTSE 100
Screen of price moves in the FTSE 100

With buy-to-let properties you need a deposit and have to deal with significant taxes, tenants not paying rent and property repairs. And my prediction is that taxes on buy-to-let investors will head even higher as government finances sag under huge Covid debts. So, with that in mind, I’d prefer to buy cheap FTSE 100 shares this year.

2 cheap FTSE 100 shares – a pharma and a bank

These two cheap FTSE 100 shares will likely be added to my portfolio. First is pharma specialist GlaxoSmithKline (LSE: GSK). Second is banking giant Natwest (LSE: NWG).

When it comes to GSK, there are reasons to knock it. The share price has underperformed versus sector peer AstraZeneca, the dividend has been held flat for years, and the focus on R&D arguably isn’t yet producing the goods.

Yet the hope must be that it can improve. Management seems serious about this as it looks to spin-off the consumer business. The company has also spent big in order to beef up its oncology portfolio. The acquisition of Tesaro back in 2019 is the most notable example of this to date.

For me, the shares now look cheap on a P/E below 11 and with potential for the drugs pipeline to boost earnings in the coming years. There’s also the dividend yield, which isn’t far off 6%. The share performed terribly in 2020, but I think 2021 could see a bounce-back. Then beyond 2021, I think GSK has a very bright future and could deliver both income and growth for patient investors.

Like other UK banks, Natwest also had a terrible 2020. In fact, it was among the worst-performing shares last year. What that does mean is there’s bounce-back potential for this year. But it has more strings to its bow than just being cheaper than it once was.

Profits are expected to leap in 2021, hitting £1.4bn as the economic recovery gets under way. I expect that if economic conditions improve in the second half of this year, banks could be among the biggest beneficiaries.

The bank’s shares now trade at a price-to-book (P/B) ratio of around 0.5. That makes it a cheap FTSE 100 share, in my eyes.

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Another cheap share with growth potential

Auto Trader (LSE: AUTO) is a little different to the two shares above, but is still good value. As my Foolish colleague Peter Stephens pointed out, it’s on a price-to-earnings growth (PEG) ratio of just 0.4. This would make it, potentially, an ideal growth share for a successful growth investor like Jim Slater.

Again, it’s a share that will need lockdowns to be eased sooner rather than later as car dealerships remain closed. Its customers are struggling so much that the website made its advertising packages free in December 2020 and will do again in February 2021, a move that will cost between £10-15m. The hope is this will pay off down the line.

I think it will. Once conditions normalise I expect that as a market leader with impressive margins, Auto Trader will deliver for shareholders. For me, it’s another cheap FTSE 100 share that could help make me a fortune.

The post Forget buy to let. I’d buy these cheap FTSE 100 shares to make a fortune instead appeared first on The Motley Fool UK.

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Andy Ross owns shares in AstraZeneca. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021