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The FTSE 100 soars on vaccine news! The cheap UK shares I’d buy now

Tom Rodgers
·4-min read
Graph Falling Down in Front Of United Kingdom Flag
Graph Falling Down in Front Of United Kingdom Flag

The FTSE 100 has soared above 6,200 points on news of a Pfizer coronavirus vaccine, sending cheap UK shares rocketing.

The American pharmaceutical giant told the world on 9 November that its drug candidate is more than 90% effective against Covid-19. Experts believed that the first set of vaccines might only be effective in treating 50% of patients.

A shockwave of optimism rippled through stock markets across the globe, sending the price of the FTSE 100 leaping to heights not seen since August.

I think that makes buying shares in cheap UK shares more viable than it seemed just 24 hours ago.

What FTSE 100 shares to buy

Shares in unloved UK sectors like airlines, travel stocks and retail have been absolutely battered by the Covid-19 crisis. Many former FTSE 100 favourites have lost more than 70% of their value since the start of 2020.

But for canny investors looking for cheap UK shares, it means a wealth of opportunities on the table now.

I would start by looking at the sectors worst hit by the global lockdowns that stemmed from the coronavirus crisis.

Fly me to the moon

British Airways owner International Consolidated Airlines Group (LSE:IAG) rocketed by over 23% on the vaccine news. But shares in the airline operator are still more than 69.5% cheaper than in January.

I said in June that I think IAG shares are a definite FTSE 100 bargain. I made the point then that cheap UK shares are most easily found when short-term demand is weakest for a company’s product.

IAG suspended its dividend in April 2020 when global lockdowns hit. In May it said British Airways was burning through £178m in cash every week with planes just sat on the tarmac.

And third-quarter results on 30 October showed the extent of the damage. IAG made an operating loss of €1.3bn compared to a 2019 operating profit of €1.425bn.

Passenger capacity in Q3 was 78.6% lower than the same period in 2019. Across the first nine months of the year, numbers were down by 64.3%.

But the news that we now could have a working vaccine means renewed hope for the travel sector. With a historically low P/E ratio of just 0.95, IAG shares are nothing if not undervalued, to my mind.

And with the opportunity for global travel to restart, as earnings begin rising, IAG could reintroduce its dividend.

Cheap UK shares to recover

A Covid-19 vaccine will take many months to filter through to the general population. Billions of doses will have to be produced, and that will take time. More tests and trials are needed and we are nowhere near the end of this horrible period in history.

However, it is a speck of bright light in the darkness.

I predict that there will be serious pent-up demand for passenger flights from millions of holidaymakers and business travellers. To me, that means IAG will see its share price rise, in tandem with other travel stocks that have had their value crushed in 2020. I’m thinking of the likes of FTSE 250 cruise operator Carnival and UK airline easyjet, for example.

It has been a very difficult time for everyone to live through. And the idea of investing appears relatively unimportant in the face of such misery and loss. But buying cheap UK shares that have seen their values crash in 2020 could offer investors like me some of the best gains of their lives.

The post The FTSE 100 soars on vaccine news! The cheap UK shares I’d buy now appeared first on The Motley Fool UK.

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TomRodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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