Are these the best cheap shares to watch in June 2024?

The UK services sector performed well in April 2024, according to the S&P Purchasing Managers’ Index. The index rose to 55 during the month – over 50 reflecting economic growth rather than contraction and the highest level seen since last May.

Nevertheless, according to the OECD, the UK is forecast to deliver sluggish growth, falling behind its G7 peers. GDP is expected to increase by just 0.4% this year before accelerating to 1% growth in 2025. The International Monetary Fund also recently cut its growth forecasts for the UK.

Given these investment themes, what could be the best shares to watch in June 2024? Here are five stocks we think may be worth keeping an eye on.

Best cheap shares to watch

These stocks have been selected for recent market news. Always do your own research. Past performance is not a guide to future performance.

1. British American Tobacco
2. Barclays
3. ITV
4. IBM
5. Associated British Foods

British American Tobacco (BATS:LON)

Shares in British American Tobacco are down 17% this year to 2,382p after the company was fined $635 million for breaking US sanctions and selling $30 million of cigarettes to the Singaporean Embassy in North Korea. The scandal led to its former chief executive Jack Bowles departing the company and former finance director Tadeu Marroco replacing him as CEO.

As a result of the fines and £22 billion in non-cash impairment charges relating to its US brands, BATS also drifted to a £15.8 million loss for 2023 (from a £10 million profit in 2022). However, excluding the impact of these charges, adjusting profits rose by 3.1% at constant currency rates and in AME (Americas and Europe) adjusted profits from operations rose by 5.9%, boosted by its new products category (vapes). Meanwhile, in APME (Asia Pacific and Middle East) adjusted profits from operations increased by 6.9%, thanks to a strong performance in Pakistan, Uzbekistan and Sri Lanka.

The company’s cash flow continues to be strong too, with BATS forecasting that it will deliver £40 billion in cash flow over the next five years. Investing in tobacco stocks is not for everyone but the shares can be a good option for income seekers as they tend to be strong cash generators, with more than a 90% cash conversion rate. BATS shares currently yield 10%.

Barclays (LON:BARC)

Despite rising in value by 31% so far this year, shares in Barclays are currently trading on a price earnings ratio of around 7.8. The bank has disappointed over the past year due to difficulties in its investment banking arm but the company could be in turnaround mode. Chief executive CS Venkatakrishnan recently announced a new plan to revitalise the business, which includes removing £2 billion from the cost base by 2026. He also revealed that the bank plans to return £10 billion to investors in share buybacks and dividends between 2024 and 2026.

Meanwhile, Barclays has also been reorganised into five new divisions, including Barclays UK, its Corporate Banking division, Barclays Private Bank and Wealth Management, Barclays Investment Bank and its US Consumer Banking arm. Management have also set a target to generate income of £30 billion by 2026. Income came in at £25.4 billion for 2023. At 183.74p, the shares, which also yield 4%, could be worth watching. Analysts at broker Berenberg Bank think they could reach 270p.

ITV (ITV:LON)

Shares in TV production company and broadcaster ITV are down 6% this year to 73p. The advertising market is suffering the effects of the wider macroeconomic environment. However, the company also makes TV programmes for other TV companies, such as the BBC, US company Peacock and streaming firms, including Amazon Prime. Meanwhile, its own streaming service ITVX is performing well.

While linear television has been hit by the success of streaming services and falling advertising sales, the broadcaster said at the recent full year results that sales from its ITV Studios and its Media and Entertainment divisions were “more than offsetting” this decline. While total revenues fell by 2%, ITV Studios saw record revenues, up 4% and 19% growth in digital sales. Plus, while earnings before interest, tax, depreciation fell by a third to £489 million, cash conversion remained strong at 102%.

The company is also on track to deliver £150 million in cost savings by 2025 and plans to return £235 million to investors from the sale of BritBox to the BBC. The shares may be worth watching for recovery prospects.

IBM (NSQ:IBM)

International Business Machines (IBM) may not be one of the popular Magnificent Seven stocks but is none the less worth watching. The stock are up 18% this year to $164 but currently trade on a price earnings ratio of around 18 – much less than the FAANG stocks, which can trade on PEs of around 30 or more. What’s more, it also pays a 4% dividend. IBM has stakes in the artificial intelligence sector through its consultancy business and also provides cloud computing services.

First quarter revenues for 2024 were flat at $14.5 billion – up 3% - while software revenues were up 6% - both at constant currency rates. Nevertheless, Arvind Krishna, IBM chairman and chief executive officer, says the company is capitalising on the “excitement and demand for enterprise AI”, with its book of business for watsonX and generative AI again showing “strong momentum” and now above $1 billion. As such, IBM has acquired Hashicorp for $6.4 billion to boost its end-to-end AI offering. Analysts at broker Jefferies currently have a price target of $210 on the shares, and a hold recommendation.

Associated British Food (LON:ABF)

Food producer and owner of the Primark chain AB Foods recently posted a strong set of half-year results. Group revenues rose 5% to £9.7 billion at constant currency rates – 2% adjusting for them – while pre-tax profits increased by 37% to £881 million (£644 million). The company says it is seeing the return of “normality” to its markets and retail sales increased by 7.5% to £4.5 billion thanks to an increase in selling space.

Margins also improved to 11.3%. AB Foods’ agriculture division is benefiting from lower cost inputs, while its British Sugar business also put in a stronger performance. The shares are up 38% this year but still trade on a relatively reasonable price earnings ratio of 17 and are worth watching, given Primark’s appeal to consumers amid the cost of living crisis.

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Best cheap shares to watch summed up

The above companies are just a small selection of top cheap stocks to watch. Remember that any company can also fail and always do your own research.

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