The best cheap stocks to watch on the ASX

Why invest in cheap stocks

The attention of the investment community is often dominated by companies whose share prices have recently skyrocketed or are currently on a rapid, upward trajectory.

Oftentimes, however, the investment opportunities offering the best returns lie amongst those cheaper stocks that have fallen out of favour or been temporarily mispriced by the market.

Despite their ability to optimise economic efficiency, markets are not always infallible, and information asymmetries can serve as a source of asset mispricing, especially in the short run.

The entire investment philosophy of Benjamin Graham - the father of value investing and Warren Buffet's biggest influence, is based upon buying the stocks of companies when they're underpriced, in order to obtain them at a discount compared to their intrinsic value.

The rational pursuit of self-interest by human beings is what makes markets work, uncovering the true values of goods, services and assets by means of purchasing decisions and price adjustments

Graham believed, however, that stock markets served best as accurate 'weighing machines' of company values over the long run. In the short run they are more akin to voting machines, susceptible to erratic fluctuations that mean share prices may not always serve as reflections of true value.

For this reason, there are some situations where companies may see their share prices fall beneath a reasonable valuation based upon a rational assessment of their underlying fundamentals.

These declines mean their shares can be acquired at a potential discount, creating the opportunity for greater capital gains than those stocks that are already riding high on popular buzz, and as a consequence may be approaching a peak in value.

Australia is an advanced economy, with highly developed stock markets in which sophisticated institutional investors play a dominant role.

There may still be occasions, however, when Graham's insights into the capital market remain applicable to Australian equities, and investors can pick up cheap ASX-listed stocks at a discount to their true value over the long run.

The top 4 cheap stocks to watch on the ASX

Here is a list of five of the top ASX-listed stocks that could be a bargain for Australian investors in search of cheap share prices as of April, 2024.

1. Woolworths Group Ltd (ASX: WOW)
2. Accent Group Ltd (ASX: AX1)
3. TPG Telecom (ASX: TPG)
4. Inghams Group Ltd (ASX: ING)

Woolworths Group Ltd (ASX: WOW)

Woolworths Group Limited is one of Australia's most iconic brands, owning a network of stores across the country that are synonymous with supermarket shopping.

In addition to its eponymously branded supermarket chain, Woolworths also owns Big W - a department store chain that is another iconic brand for Australian consumers.

Woolworths' share price has struggled in 2024, with a drop of more than 14% year-to-date. The surprise departure of CEO Bradford Banducci in February weighed heavily on prices, as did losses after significant items of $781 million for H1 FY24, primarily due to the $1.5 billion non-cash write-down of the company's New Zealand operations.

Given its iconic status and ubiquitous presence, however, Woolworths is unlikely to be going anywhere soon, and could currently be a bargain investment.

Accent Group Ltd (ASX: AX1)

First founded in New Zealand as a wholesale distributor in 1988, AX1-AU has since evolved into a leading retailer of sports and fashion apparel that integrates both online and bricks-and-mortar sales channels.

The company has over 800 outlets, with 34 brands and more than 35 online platforms.

Bell Potter is bullish on Accent Group, given the scale and variety of its channels, its expansion of a vertical brand strategy, as well as exclusive partnerships with leading global brands such as Hoka.

The broker has a buy rating for the company, with a price target of $2.50.

TPG Telecom (ASX: TPG)

Sydney-headquartered TPG Telecom (ASX: TPG) is the second-largest telecommunications company listed on the ASX as well as Australia's third-largest wireless carrier. The company lays claim to a raft of leading brands on Australia's retail Internet market, including AAPT, iiNet Vodafone, TPG and Lebara.

The company's share price has struggled since the start of 2024, falling over 11% year-to-date.

Analysts from Morningstar are upbeat about the company, expecting earnings to rise on the back of rationalisation of the Australian mobile market, benefits from the transition to 5G as well as growth in TPG's fixed wireless and corporate division.

It forecasts compound annual growth of 5% in TPG's adjusted EBITDA over the next half-decade.

Inghams Group Ltd (ASX: ING)

Iconic poultry producer Inghams Group Limited was first founded over a century ago in the Sydney suburb of Casula in 1918. The company has since grow into one of the largest producers of chicken and turkey products in Australasia, with more than 8,000 staff spread across 100 locations in Australia and New Zealand.

The colourful Inghams family - renowned for their love of horse-racing within Australia, retained management of the company until 2014, when TPG Capital purchased it for $880 million. Inghams listed on the ASX in November 2016.

Morgans considers Inghams' shares to be deeply undervalued, given its strong dividends and its dominant position on the Australian poultry market, as well as a low PE estimated to be 11.3x FY 2024 earnings.

"ING remains undervalued trading on a low PE multiple, especially for a market leader with a vertically integrated operating model and assets that are difficult and costly to replicate," the broker said.

Morgans also highlighted its fully franked divided yields, which its forecasts to reach 5.9% this year and 6.9% next year. The broker has an add rating for Inghams, with a price target of $4.40.

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