Best cheap UK stocks to buy in August 2022

What are the best cheap stocks to buy in August? We look at some of the options available to investors this month.

Associated British Foods - well positioned for the downturn

Retail may not look like the most attractive sector to invest in right now. After all, retailers are under a lot of pressure due to increased input costs, such as rising energy, logistics and staffing costs. Plus rampant inflation means that customers are cutting back and spending less and a recession is on the way.

However, Associated British Foods PLC, which owns discount clothing retailer Primark, is better positioned to withstand – and perhaps even benefit - long-term from trends such as the cost of living crisis. In tough financial times, consumers turn to companies such as Primark, when they want to save money.

True, like many other retailers, AB Foods warned at the half-year results in April that it would have to increase prices at Primark as it was unable to absorb input cost hikes fully.

“Looking further ahead, inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock,” chief executive George Weston told investors.

“However, we are committed to ensuring our price leadership and everyday affordability, especially in this environment of greater economic uncertainty.”

Return of tourism boosts Primark

However, despite the inflationary concerns, Weston says he still expects “significant progress” in growing adjusted operating profits and earnings per share this year. At the third-quarter trading statement in June, sales at Primark were 81% ahead of the same quarter last year and 69% higher in the year to date – although in the comparable period, its stores were closed until April 2021. The company says that the return of tourism and office-based working has boosted sales.

What’s more, its food business, which sells a number of consumer staples, such as sugar and flour, remains resilient, with sugar and grain prices strong. Analysts at broker Barclays have a price target of 2300p on the shares.

AB Foods shares are currently trading at a five-year low of 1,666.5p – down 36% from their three-year highs of 2,613p last seen in January 2020 before the Covid lockdowns. While things may continue to be rocky in the short term, at these levels, the shares are worth buying for the longer term.

Barclays – poised to recover from its recent woes

Barclays’ shares have had a torrid year so far – down 27% to 157.6p since hitting a year high of 217p in January. Unfortunately, the bank has mostly brought this on itself through its structured notes blunder in the US. In a complex debacle, Barclays was fined by the US Securities and Exchange Commission for over-issuing the securities by $17.5 billion over a three-year period.

However, the share price dip represents a decent entry point for investors. Like other banks, Barclays looks set to benefit from the recent flurry of interest rate hikes.

Half-year pre-tax profits fell 24% to £3.7 billion compared with last year due to increased operating expenses from the structured notes scandal. Meanwhile, revenues rose 17% to £13.2 billion (including the over-issuance of securities), boosted by strong trading revenues at Barclays investment banking division.

Barclays relaunches share buyback programme

Barclays had also been poised to renew its previously mooted £1 billion share buyback scheme for investors once the current situation with the SEC is behind it. Alongside its half-year results, it unveiled a £500 million buyback programme.

The structured notes issue is likely to continue to weigh on the shares in the short term. The bank has already paid out £600,000 in litigation and conduct charges and the incident is an embarrassment - particularly for new CEO C. S. Venkatakrishnan, who was chief risk officer at the time. He replaced former chief Jes Staley who left last year, following an investigation into his friendship with the late Jeffrey Epstein.

Nevertheless, the shares look oversold and are worth buying on recovery hopes.

Analysts at Berenberg Bank currently have a buy rating on the shares with a price target of 260p. The fact that Barclays’ management made the decision to relaunch the buyback programme, which had been delayed because of the debacle, can also be taken as a sign of confidence.