Best cheap shares to buy in August 2023

After core inflation has continued to be stubbornly high for months, contributing to a cost of living crisis in the UK, prices rise have suddenly eased. Inflation fell to 7.9% in June, compared to a high of 11% last October.

“While the Bank of England is likely to increase its rate somewhat further, the latest figures suggest that inflation is now firmly on a downward track,” writes DeAnne Julius, a former member of the Monetary Policy Committee, in the Financial Times.

“The probability of a soft landing, rather than a recession, has risen.” This is too early for mortgage rates, says Julius, which may continue to rise but producer prices are falling, which should begin to feed through to consumer food prices.

On the downside, Russia has pulled out of the Black Sea grain deal, which could weigh on prices, extreme heat in southern Europe could hit crops and the travel industry.

So what are the best cheap shares to buy this summer? Here is a selection of company shares we think it could be worth taking a look at.

Easyjet enjoying strong sales

Low-cost airline Easyjet recently unveiled an impressive third-quarter trading update. Profit before tax for the period came in at a record level of £203 million. Revenue per seat (RPS) also increased by 23% over the period, while fuel costs per seat fell by 2%.
What’s more, the airline is forecasting strong profits for the summer despite air traffic control issues and expects to post record profit before tax for the fourth-quarter.

Meanwhile, winter sales also look healthy, with sales up more than 100% on the same period last year and additional capacity being added. Fuel costs are also expected to fall further later this year, while revenue per seat is also forecast to rise a further 10% in the fourth-quarter.

Johan Lundgren, CEO of EasyJet, said: "We continue to see good momentum as we move into Q4 where we will be operating over 160,000 flights and expect to deliver another record PBT (profit before tax) performance. This winter we are adding more than 15% capacity and we see bookings ahead of the same period last year."

A cloud on the horizon, however, is disruption to air traffic control, with constrained air space and strikes day by air traffic control operators up 40% compared to last year. Earlier in July the company cancelled 1,700 flights due to air traffic control problems. European airspace has become congested because of the loss of 20% of the airspace due to the war in Ukraine. Another issue could be the extreme hot weather in southern Europe, which has recently caused wild fires in Greece and the evacuation of tourists from Rhodes. However, Easyjet says it has not seen any effect on bookings so far.

Easyjet shares are up 20% this year to 450p. However, they are still some way off their five-year highs of 820.7p last seen in July 2021 and, with strong growth prospects, are worth buying. Analysts at broker Deutsche Bank have a price target of 585p on the shares, while those at Liberum think the shares could reach 690p.

JD Wetherspoon in recovery mode?

The pub sector could be making a comeback after the energy price crisis hit companies hard last autumn. Low cost pub chain JD Wetherspoon recently posted a positive trading statement, with sales up more than 10%.

Energy prices have eased and Wetherspoons may be benefiting from bargain hunters looking for more affordable eating out options. Like-for-like sales for the first 10 weeks of the final quarter of the company’s financial year were up 11% compared to the same period last year before the Covid pandemic, ending 28 July 2019. Year-to-date sales are also up by 7.4% compared to the same year, while like-for-like fourth quarter sales are up 11.5% compared with 2022.

"The company expects profits in the current financial year to be in line with market expectations,” chairman Tim Martin told investors. “As a result of a continued improvement in sales and a slightly reduced expectation for cost increases, for example energy costs, the company anticipates an improved outcome for the next financial year, and anticipates an outcome for the first half of FY24 approximately in line with the second half of FY23."

While net debt remains hefty at £688 million, this has reduced by £114 million over the year and Wetherspoons says it has £289 million in financial ‘headroom’.

Inflation, energy prices and the cost of living crisis continue to be downside risks but Wetherspoons is often seen as a low cost choice in the pub sector. The shares are up 25% this year to 679p but are still a long way from their highs of 1,414p, seen in May 2021. The company’s full-year results are due out on 6 October.

Time to look again at Barclays?

Barclays shares, which offer a dividend yield of 4%, are up just 3% this year and trade on a price earnings ratio of just 5. Shares in the banking group have suffered after the company was hit last year with substantial legal bills and penalties after over issuing a number of securities.

However, Barclays’ recent first-quarter trading statement was upbeat, with group income up 11% on the same period last year to £7.2 billion. Profit before tax increased by 16% to £2.6 billion, while UK income in the period rose 19%, boosted by interest rate hikes. Barclays, which saw growth from all its divisions, delivered a return on tangible net equity of 15% (10% last year) in line with expectations. The liquidity coverage ratio – a measure of resilience - came in at 163%.

At 161.8p, the shares are still some way off their five-year highs of 203.89 seen in October 2021 and could be on the road to recovery. Analysts at Berenberg Bank think the shares could reach 270p, while those at broker Jefferies recently increased their price target on them from 300p to 320p.

Past performance is not a guide to future performance