After Russia invaded Ukraine on 24 February, the volatility of global stock markets surged. Since then, the FTSE 100 index has been as high as 7,499.33 points and as low as 6,787.98. That’s a range of 711.35 points — a swing of 10.5% — in the 11 trading days to Thursday. As I write, the index stands at 7,164.12 points, 523.15 points (-6.8%) below its 52-week high. For a long time, I’ve argued that the FTSE 100 is packed with cheap shares. After recent price falls, I see plenty of blue-chip stocks dumped into Mr Market’s bargain bin. Here are two dirt-cheap shares that I don’t own, but would happily buy today for my family portfolio.
Cheap shares: 1. Rio Tinto
At their 52-week high on May 10 2021, Rio Tinto (LSE: RIO) shares hit 6,587.69p. As I write, the global mining Goliath‘s stock trades at 5,542p. That’s a drop of more than £10 (-15.9%) in 10 months. This values the Anglo-Australian miner of iron ore, aluminium, copper, and lithium at £93.4bn, making it a FTSE 100 super-heavyweight. Though metals prices have surged in 2021-22, Rio’s share price is down 3.4% over the past 12 months. I think its cheap shares offer compelling value, especially for income investors like me.
Thanks to its soaring cash flow, profit, and earnings, Rio shares trade on a price-to-earnings ratio of 5.6 and an earnings yield of 17.8%. What’s more, they offer a dividend yield of 10.4% a year — around 2.6 times the FTSE 100’s 4% cash yield. In 2021, Rio’s total dividend pay-out was $16.8bn (£12.6bn) — more than most UK companies are worth. Though I know from experience that mining stocks can be highly volatile and risky, I plan to buy Rio Tinto’s dirt-cheap shares for my family portfolio.
Income stocks: 2. M&G
The second of my cheap shares lurking in the FTSE 100 index is M&G (LSE: MNG). M&G was founded in 1931 and launched the UK’s first mutual fund that year. Once part of the mighty Prudential group, asset manager M&G was listed in London in October 2019 as a separate company. At their 52-week high on 1 June 2021, M&G shares peaked at 254.3p. As I write, they trade at 221.7p, down 32.6p (-12.8%) from this peak. This values the group at £5.8bn — a mere minnow when compared to its biggest (mostly US) rivals.
Over the past 12 months, the M&G share price has crept up by just 1.1%. To me, this suggests that this stock remains in bargain territory. Looking ahead, these cheap shares trade on a forward price-to-earnings ratio of 10 and a matching earnings yield of 10%. But what really draws me to this stock is its market-beating dividend yield of almost 8.3% a year. That’s more than twice the cash yield of the wider FTSE 100. Of course, share dividends are never guaranteed, as they can be cut or cancelled at any time. Even so — and despite stock markets being shaky lately — I will soon add this dividend dynamo to my family portfolio for its passive income!
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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.
