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Got £750 to invest? Here are my 2 best cheap shares to buy now!

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Cliff D'Arcy
·4-min read
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Dice engraved with the words buy and sell, possibly in FTSE 100
Dice engraved with the words buy and sell, possibly in FTSE 100

I have an odd personality quirk: I prefer not to buy and own things. For instance, I don’t own a house (but my wife does). Also, I’ve never owned a car (but I’ve driven company cars). Most of my treasured possessions are ancient. For example, I keep patching up my 25-year-old walking boots to keep them going. Thus, when I receive any sudden windfalls, I rarely have any immediate use for them. Generally, I give any spare money to my wife to spend or save, or I invest into cheap shares for a passive income.

I’ll invest £750 into cheap shares

Last weekend, I had a modest windfall when I won $1,000 (over £720) in an online poker game. I decided to round this to £750 to buy cheap shares. As a veteran value investor, I scanned the FTSE 100 index over the past year, looking for laggards. Here are two stocks I like today.

Cheap shares #1: GlaxoSmithKline

I’ve owned a stake in pharma giant GlaxoSmithKline (LSE: GSK) for almost three decades. As my largest personal shareholding, GSK has been a big disappointment of late. Over the past 12 months, GSK has been among the Footsie’s worst performers. In fact, it’s ranked #96 out of 101 FTSE 100 shares since 19 March 2020 (just before the market bottomed on 23 March). GSK is down almost a tenth (9.7%) over 12 months, versus a 30.2% gain for the index. Nevertheless, as a buyer of cheap shares, I welcome the chance to invest after price falls.

At last year’s peak, the GSK share price hit a high of 1,857p on 24 January 2020. On Friday, shares changed hands for 1,299p. That’s a collapse of three-tenths (30%) in 14 months. I know there are worries about GSK’s forthcoming separation into two separate listed companies. And GSK boss Dame Emma Walmsley has hinted that the group will cut its long-established cash dividend of 80p a share.

Even so, I think anxiety about GSK’s future might be overdone. Right now, GSK stock trades on a price-to-earnings ratio of 11.4 and an earnings yield of 8.8%. The dividend yield of 6.2% a year is almost double that of the FTSE 100. With GSK looking undervalued on these fundamentals, I’ll keep buying these cheap shares for a juicy passive income.

A great business at a 20% discount

For the record, 92 of the 101 shares currently in the FTSE 100 index have gained since 19 March 2020. Still, it genuinely surprises me that Unilever (LSE: ULVR) stock is among the stragglers. Shares in the Anglo-Dutch Goliath are down 2.4% over 12 months. At its peak in 2020, the Unilever share price was riding high at 4,944p on 14 October. Today, the shares trade at 3,974p — down 970p in five months. That’s a slide of almost a fifth (19.6%), which indicates to me that Unilever stock may have been dumped in the ‘cheap shares’ bargain bin.

Globally, 2.5bn people use Unilever products each day. And because Unilever is a powerhouse in FMCG (fast-moving consumer goods), its stock generally commands a premium rating. But, like Warren Buffett, I don’t mind paying a fair price to buy into a great business. On Friday, ULVR stock traded on a price-to-earnings ratio of 22 and an earnings yield of 4.5%. The current dividend yield of 3.7% is ahead of the wider FTSE 100. Hence, as a value investor, I’d be happy to buy these discounted shares today!

The post Got £750 to invest? Here are my 2 best cheap shares to buy now! appeared first on The Motley Fool UK.

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Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline and Unilever. 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