These quality stocks have dived since June. I’d buy these cheap shares today

From June, the FTSE 100 index zigzagged downwards, losing ground as rising Covid-19 infections worried investors. By Halloween, the Footsie had dropped 590 points — almost a tenth (9.6%) — as share prices drifted downwards. Then came a near-record month, with cheap shares staging a massive comeback and the FTSE 100 leaping by almost an eighth (12.4%) in November. However, not all stocks rose in this relief rally, with several quality companies lagging behind.

Bottom-fishing for cheap shares

From early June until today, 29 FTSE 100 members have seen their share prices decline. The worst performer has crashed by almost a quarter (24.1%), while the best of these 29 losers had its share price dip by just 0.3%. Overall, the average decline among these laggards is 9%, with 12 stocks recording higher falls than this. I see this ‘dirty dozen’ as fertile ground for bottom-fishing — finding unloved and cheap shares ready to rebound. Here are two quality stocks I like the look of today.

BP is the bottom pick

Oil & gas giant BP (LSE: BP) has the dubious honour of being the worst-performing FTSE 100 stock over the past six months. BP shareholders have had a terrible year, due to the oil price crashing as fuel demand dried up during lockdowns. In early 2020, a barrel of Brent crude cost around $70. At its low on 22 April, Brent crude traded below $16 a barrel. As a result, and following a hefty dividend cut, BP’s share price imploded.

BP stock crashed spectacularly from 471.6p at the end of 2019 to just 188.52p by 28 October. At this point, these cheap shares were priced at a 26-year low. Since then, BP stock has bounced back hard and now trades at 262.46p, up almost two-fifths (39.2%) from its low. Despite this healthy recovery, I suspect BP shares are trading at a discount to their underlying value. After all, BP — one of the world’s energy supermajors — has a market value just above £50bn today. Obviously, BP is not a stock for green/environment investors, but its shares offer a compelling dividend yield of 6% a year. In a world of low or negative interest rates, this is a passive income not to be missed. That’s why I’d buy BP’s bargain stock today.

Will GSK bounce in 2021?

The second of my ‘loser picks’ of the past month is GlaxoSmithKline (LSE: GSK). The cheap shares of the UK’s #2 pharma giant keep getting steadily cheaper this year. In fact, they are at #24 in my list of 29 losers, down nearly a sixth (16.4%) in the past six months. Since hitting its 52-week peak of 1,857p on 24 January, GSK stock has dived to just 1,397p today. That’s a decline of 460p — almost a quarter (24.8%) — from the January high.

In a year when UK and US healthcare stocks have boomed, GSK has completely missed this rising tide. I struggle to understand this, because its cheap shares look attractive to me. Having been a GSK shareholder for most of the past three decades, I see this stock as a prime candidate for recovery in 2020. After all, GSK shares trade on a lowly price-to-earnings ratio of 10.8% and an attractive earnings yield of 9.2%. Even better, they offer patient investors a bumper dividend yield of 5.7%, with quarterly cash dividends totalling 80p a share. As a lifelong follower of GSK, I am happy to continue reinvesting my dividends into more shares, waiting patiently for a rebound in 2021!

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Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. 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.

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