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

Despite a sluggish start to the year, the UK economy appears to have picked up slightly as the OCOECD reported that GDP grew by 0.6% in Q2 and has increased its forecast of GDP growth for 2024 from 0.4% to 1.1% claiming that the UK economy is ‘turning the corner’ and could experience ‘ongoing growth and momentum.’ 2025 forecasts were also raised from 1.0% to 1.2%.

As the UK economy enters into a phase where interest rates are beginning to be cut, higher GDP is likely to occur. That said, interest rates remain high and if inflation begins to creep up further rate cuts may be few and far between.

Given these investment themes, here are five stocks we think may be worth keeping an eye on this Autumn.

Best cheap shares to watch

These stocks have been selected as its P/E ratio is lower the P/E ratio of its sector as a whole. Always do your own research. Past performance is not a guide to future performance.

1. Barclays
2. ITV
3. IBM
4. Associated British Foods
5. J D Sports

Barclays (LON:BARC)

Despite rising in value by 38% so far this year, shares in Barclays are currently trading on a price earnings ratio of around 8.66, significantly below the P/E ratio of the UK finance sector which currently stands at 16.99. The bank has disappointed over the past few quarters as consumers have shifted to longer term savings accounts with higher rates, but this shift appears to have slowed and 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 £6.3 billion for Q2 of FY25, up 1% year-on-year.

Our analysts view the stock in a buy position where shares could reach 280p in the next 12-month period, up 22.46% from its current price.

ITV (ITV:LON)

Shares in TV production company and broadcaster ITV are up 30% this year to 82p but their P/E ratio of 7.66 is below the P/E ratio of the UK industry as a whole which stands at 23.2. 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.

While linear television has been hit by the success of streaming services and falling advertising sales, the broadcaster’s own streaming service ITVX is performing well with advertising revenue growing with momentum on this platform. If ITV want to off-set weaknesses from the free to air side of the business, it’ll have to expand its digital offerings.

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.

Our analysts have given the stock a buy rating with a predicted price target of 96.2, up 17% from its current price.

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 is up 38% this year to $222 but currently trade on a price earnings ratio of around 24 – less than the FAANG stocks, which can trade on PEs of around 30 or more. What’s more, it also pays a 3% dividend. IBM has stakes in the artificial intelligence sector through its consultancy business and 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.

Associated British Food (LON:ABF)

Food producer and owner of the Primark chain AB Foods anticipate a mixed set of H2 results, warning of lower than expected profits in its Sugar division due to falling prices. It’s retail division, however, is performing well with Primark seeing continued sales growth due to overseas expansion and new store openings. The fast fashion retailers recent click-and-collect proved successful and has boosted confidence that growth will continue if its delivery infrastructure can be managed.

The shares 3% since the beginning of the year but still trade on a relatively reasonable price earnings ratio of 15.2, below the P/E ratio of the UK food and consumer staples industry as a whole.

Given the diversified business model of ABF, which is spread across multiple sectors, which helps minimise risk if one sector faces challenges, its shares could present a good opportunity for long-term investors.

Our analysts have given the stock a hold rating with an average price target of 2610p, up 12.35% from its current price.

JD Sports (LON: JD.)

Sports retailer JD Sports has recently seen its share price recover after reporting strong organic sales growth in Q2. Although some external factors have caused challenges for the company over the past few months, its current valuation of $247 billion is expected to increase to $342 billion by 2029.

JD Sports recent acquisition of US based company Hibbet has significantly increased its store count and helped it expand into America. Although these expansion plans prove costly and may impact short term profits, it also indicates a lot of growth potential in the next few years.

Many analysts believe the stock is currently undervalued where its recent acquisitions are not yet reflected in the share price. Its P/E ratio of 14.90 is below the P/E ratio of the UK retailer which currently stands at 20.5, further indicating growth potential.

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Best cheap shares to watch summed up

Given the current economic climate, with the UK economy entering into a phase where interest rate cuts are more likely, the above stocks have been identified as having growth potential.

These 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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*Based on revenue excluding FX (published financial statements, October 2021).