In the four weeks from 29 June to 26 July, my wife and I went on a share-buying spree. In total, we added 10 cheap shares to our existing family portfolio. Six of these stocks came from the blue-chip FTSE 100 index, three from the mid-cap FTSE 250, and one from the US S&P 500 index.
We bought these shares for three reasons. First, based on their underlying fundamentals, they all looked cheap to me. Second, they are all established firms with easily understood business models. And third, following sustained price falls, all 10 stocks looked better value to me.
What’s happened to our 10 cheap shares?
Here’s how our low-priced stocks have performed since their purchase dates. This snapshot was taken approaching lunchtime on Wednesday morning:
|Company||Business||Index||Return to date|
|Target Corporation||Retailer||S&P 500||16.7%|
|Legal & General||Insurer||FTSE 100||15.0%|
|Direct Line||Insurer||FTSE 250||8.3%|
|Royal Mail||Post||FTSE 250||0.9%|
|Rio Tinto||Miner||FTSE 100||-6.8%|
On viewing these returns, a few things jump out at me. I know full well that I never get it right all of the time. Even so, it’s pleasing to see eight of these 10 new shares registering early paper gains. The worst performer is mega-miner Rio Tinto, whose shares have lost almost 7% of their value over these past few weeks. But that comes as no big surprise to me, as I fully expected this FTSE 100 stock to be very volatile in 2022/23.
The biggest winner is giant US supermarket chain Target Corporation, whose stock has leapt a sixth so far. I was so convinced that this S&P 500 stock was very under-priced that both my wife and I bought it — something that almost never happens.
Another theme that leaps out is that our financial stocks are doing rather well. Five of the top six performers are either UK banks or insurance companies. Having worked for such firms over a 15-year period, I feel that I have a reasonable grasp of this sector and its value stocks. So far, so good.
This is not a portfolio
Note that this is a mini-portfolio to add to our existing investments and assets. With only 10 shares, it’s not a proper portfolio, which would typically contain 20 to 30 stocks at a minimum. Instead, it’s a highly concentrated investment pot — designed to add extra dividend income for reinvesting in more shares or spending.
Indeed, cash yields for these 10 cheap shares range from 2.5% (from Target) to 13.5% a year (from housebuilder Persimmon). The average cash yield across all 10 stocks is a tidy 7.4% a year. That’s almost 1.9 times the FTSE 100’s yearly dividend yield of around 4%.
We bought these stocks for the long term
Of course, it matters little to us how these stocks perform in their earliest days. As long-term investors, we try to look beyond current problems, such as red-hot inflation, skyrocketing energy bills, rising interest rates, and slowing economic growth. We bought these 10 cheap shares to generate income for decades — and let’s hope that’s what they do. Foolish fingers crossed!
The post I bought 10 cheap shares. Here’s what happened next appeared first on The Motley Fool UK.
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Cliffdarcy has an economic interest in all the shares listed above. The Motley Fool UK has recommended Barclays, ITV, 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.