After watching global stock markets plunge in the first half of 2022, my wife and I recently started buying cheap UK shares. Our search was concentrated in the FTSE 100 index, where my wife bought six new stocks. However, we have also added three FTSE 250 shares and one beaten-down US stock.
Here are two FTSE 100 shares we bought that still appear cheap to me right now:
FTSE 100 share #1: Rio Tinto
Anglo-Australian mega-miner Rio Tinto (LSE: RIO) is the world’s second-largest mining company. Alas, this FTSE 100 firm’s shares have taken a beating lately, losing almost 19% of their value since 7 June. Here’s how Rio’s share price has performed over six different timescales:
| Five days | -0.4% |
| One month | 5.4% |
| Six months | -10.4% |
| 2022 YTD | 1.1% |
| One year | -18.0% |
| Five years | 46.7% |
These figures show that this FTSE 100 share has been a lemon over six months and one year, but has gained almost 50% over half a decade. However, this stock is very volatile, because it is heavily geared towards falling metal prices (such as copper, iron ore and aluminium). After recent share-price falls, these are Rio’s trailing (backward-looking) share fundamentals:
| Share price | 4,953p |
| 52-week high | 6,343p |
| 52-week low | 4,354p |
| Market value | £83.2bn |
| Price-to-earnings ratio | 5.6 |
| Earnings yield | 18% |
| Dividend yield | 10.7% |
| Dividend cover | 1.7 |
Though I fully expect Rio’s earnings to decline over the next 12 months, I bought this FTSE 100 stock for its bumper (but not guaranteed) dividend yield. I hope it isn’t cut again, as happened last in 2016. Also, despite soaring inflation, rising interest rates, and the war in Ukraine, I expect the global economy to stage a comeback in 2023/24. In short, I view Rio Tinto as a long-term winner, despite my short-term worries.
Cheap share #2: L&G
Legal & General Group (LSE: LGEN) is one of the UK’s leading providers of life assurance, savings, and investments. Founded in 1836, L&G has been a household name since Victorian times. Having worked in this sector, I hold this FTSE 100 firm, its business model, and its management all in high regard. Today, L&G manages over £1trn for over 10m customers. Wow.
Here’s how L&G shares have performed over six time periods:
| Five days | 2.5% |
| One month | 14.9% |
| Six months | -5.7% |
| 2022 YTD | -9.9% |
| One year | -1.3% |
| Five years | -0.4% |
This FTSE 100 stock is down over stretches ranging from six months to five years, but has rebounded almost 15% over the past month. Yet L&G’s fundamentals still seem modest to me, as follows:
| Share price | 268p |
| 52-week high | 309.9p |
| 52-week low | 225.49p |
| Market value | £16bn |
| Price-to-earnings ratio | 8.2 |
| Earnings yield | 12.2% |
| Dividend yield | 6.7% |
| Dividend cover | 1.8 |
What prompted us to buy these shares? I was drawn to the market-beating cash yield of almost 7%, covered almost twice by earnings. Though no future dividends are certain, this looks like a solid payout to me. Indeed, L&G didn’t even stop paying dividends during the Covid-19 crisis, which is a testament to its balance-sheet strength.
In summary, although I have high hopes for these two FTSE 100 stocks, I do expect them to oscillate over the coming 12 months. But, as a long-term investor, this doesn’t worry me much these days!
