Apparently, there was a brief stock market crash this week. However, if I’d skipped Thursday, I would have missed it. Over the five trading days to Friday, the FTSE 100 index lost a mere 24.16 points (-0.3%). On the other side of the Atlantic, the S&P 500 index actually gained a miniscule 0.08 points over the past week. Russia invaded Ukraine on Thursday, but the day’s slump was followed by Friday’s pump. Once again, investors worldwide rushed to ‘buy the dip’ by sweeping up cheap shares.
I’m hunting for cheap shares
Though the S&P 500 has lost 8% of its value so far in 2022, I still regard US shares — especially speculative tech stocks — as historically expensive. That’s why my family portfolio stopped buying US stocks a few months ago. However, in historical and geographical terms, the FTSE 100 looks cheap to me today. That’s why I’m constantly scouring the Footsie, looking for cheap shares and recovery plays to buy.
For the record, the FTSE 100 has gained 1.4% so far this year, making it one of the world’s best-performing stock markets in a volatile 2022. However, not all Footsie shares have done well lately. Indeed, some stocks trade closer to their 52-week lows than their 52-week highs. One of these cheap shares to catch my eye is investment manager M&G (LSE: MNG). It’s down nearly 2% this year.
It was founded in 1931 and launched the UK’s first mutual fund that year. The business was part of the giant Prudential group until October 2019, when it was spun off as a separately listed company.
M&G looks cheap to me
On Friday, the shares closed at 210.6p, up 9.3p (+4.6%) on a day when the FTSE 100 leapt 3.9%. This values the asset manager at £5.5bn. However, at its 52-week high, the M&G share price hit 254.3p on 1 June last year. At its 52-week low, the stock slid to 182.95p on 26 February 2021 — almost exactly a year ago. And although the shares have gained 14.5% in the past 12 months, they still look attractive to me today.
At Friday’s closing price, M&G shares trade on a forward price-to-earnings ratio of around 10 and an earnings yield of 10%. But what really draws me to M&G is its hefty dividend yield. Currently, this stands at 8.7% a year. That’s around 2.2 times the FTSE 100’s cash yield of roughly 4% a year. To me, it’s this cash payout that makes M&G one of the cheap shares I want to own. Of course, company dividends are not guaranteed — they can be cut or cancelled at any time. Indeed, dozens of FTSE 100 companies cancelled their dividends during the Covid-19 crisis of spring 2020. But M&G’s board has indicated that it plans to increase the dividend over time, not reduce it.
Then again, M&G faces stiff competition from far larger competitors, including several US giants. Also, low-cost index-tracking funds keep eroding asset managers’ fees. Despite these headwinds, I still regard M&G as one of my top cheap shares for 2022. That’s why my family portfolio will be buying this FTSE 100 stock to hold for many years to come!
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.
