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Are value shares coming back into favour? I hope so and this is what I’ll be buying

Andy Ross
·3-min read
Man typing into calculator and making notes
Man typing into calculator and making notes

Since the so-called value shares bounced the highest from the positive news of the Pfizer vaccine earlier this month, there’s been speculation that value investing might come back into favour. In the low-interest environment of the past decade, growth shares have been the better performer.

With my own portfolio mainly skewed towards value and income shares, I hope the appetite for value shares come back. Even if it doesn’t though, there’s plenty of cheap companies I’ll be adding to or buying.

For example, in the last week, I’ve just added a new position in International Consolidated Airlines Group (LSE: IAG).

These value shares offer plenty of upside in my opinion

IAG is a recovery play on Covid-19. If the vaccines work and more positive data comes through then the share price could well jump from its low starting point. That’s what happened after the first Pfizer vaccine announcement. I think there is, of course, a risk that if vaccine data isn’t good, the share price could give up its recent gains and slump. For me, it’s a risk worth taking.

It’s hard to time the market. That’s why I’ve waited till very recently to buy into IAG and only put a relatively small amount on the line with it. I may add to my stake if the shares gain some momentum.

To me, the airline is well run, likely to survive the pandemic and come out the other side stronger as a result as weaker rivals folding. Even in relatively good economic conditions, air travel is a tricky industry, so it’s likely only the most robust will come through this tough period. I fully expect IAG to be one of the survivors.

Another UK bank with a cheap share price

Banks are another cheap industry. Barclays (LSE: BARC) is a cheap share I might well look to add. Even after a recent small bounce in the share price the shares still trade on a price-to-earnings multiple below 10. They’re well down on where they finished 2019 so there’s plenty of room for growth.

The bank seems in good shape. Barclays’ CET ratio — a key measure of banking capitalisation — now stands at 14.6%, up from 13.8% at the start of the year. It’s 3% above the regulatory minimum.

In the third quarter, net interest income fell only 16% to £2.1bn. By most other measures the performance of the bank didn’t indicate big struggles ahead.

This is why I believe the dividend might be bought back, which would likely boost the share price. When the shares combine value and income, along with recovery potential, I’ll definitely be interested in buying. This will sit alongside my stake in another UK bank, Lloyds Banking Group.

Overall, regardless of whether value outperforms growth or vice versa, for long-term investors there are plenty of good companies in the UK. Many are trading cheaply. That’s a good thing if you’re a buyer like me.

The post Are value shares coming back into favour? I hope so and this is what I’ll be buying appeared first on The Motley Fool UK.

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Andy Ross owns shares in International Consolidated Airlines Group and Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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 2020