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

A number of different investment themes abound this month and into the year beyond. The US Presidential Election now looms large, with Trump and Biden the likely contenders following the battles of Super Tuesday. In the US the economic environment is improving, with almost half of US voters telling the latest FT-Michigan poll that they are "able to meet expenses with a little left over."

Meanwhile, the UK Budget was unveiled by Chancellor Jeremy Hunt ahead of the likely general election later this year, with a £10 billion cut in national insurance and a crack-down on 'non-doms' who are resident in the UK but for tax purposes domiciled overseas. In addition, the UK officially entered a recession in the second half of 2023.

Beyond the UK and the US, war in Gaza and the Ukraine continue and speculation is mounting as to whether the US and Europe will extend their funding to the war effort in the Ukraine and what a possible second Donald Trump presidency could mean for the latter.

Best cheap shares to watch

Amid these issues, here are five stocks we think could be the best cheap shares to watch in April 2024. They have been chosen for recent market news.

Past performance is not a guide to future returns.

1. Diageo
2. IMI
3. Pets at Home
4. IBM
5. Phoenix Group

Diageo (LON:DGE)

It hasn’t been an easy 12 months for Diageo, which lost its long-time chief executive Ivan Menezes to illness last year. It has also weathered a November profits warning following a slowdown in its Latin American markets. The company says that “fast changing consumer sentiment” and high levels of inventory negatively affected the performance of its Latin American businesses. As such, it has since cut inventory levels in the region.

However, outside this region, Diageo managed to grow organic net sales by 2.5% during the first half of 2024, thanks to strong growth in Europe, Africa and Asia Pacific. Meanwhile, demand is said to be returning in North America. The drinks giant also generated $1.5 billion in free cash flow and $335 million of savings. It also has a $1 billion share buyback programme and returned $500 million to investors during the period. The shares are down 17% this year to 3,004p but are worth watching, given the strength of the company’s brands around the world.

IMI (LON:IMI)

Precision engineering firm IMI specialises in fluid and motion control products and systems. It recently unveiled strong full-year results, with revenues up 7% to £2.2 billion, with pre-tax profits also up 6% to £302 million. The company, which raised its dividend by 10%, currently boasts a record process automation order book, which management says should provide “momentum into 2024”.

Around 45% of its revenues are now generated by aftermarket sales, providing more stability, and IMI has also taken £20 million in costs out of the business this year and its operating margins also improved by 90 basis points to 18.7%. IMI also rejoined the FTSE 100 during the year, which should provide a boost as certain tracker funds have to purchase the shares. The shares are up 10% this year to 1,771p, but trade on a relatively undemanding rating of 19.

Pets at Home (LON:PETS)

Shares in Pets at Home have been hit by a Competition and Markets Authority investigation into the veterinary sector. The company runs in-store veterinary clinics as well as its retail business, which are performing well. The stock is currently down 26% for the year to 279.4p. However, much of the bad news could now already be priced into the shares. Also, the company is putting in a resilient performance overall given the difficulties in the retail sector. At the recent third quarter results, group revenues rose 4.3% to £362.4 million, with like-for-like sales up 4.4%.

Meanwhile, revenues in the Vet Group were strong, with third quarter sales up 13.4% and up 13.3% on a like-for-like basis. The retail business is facing challenging market conditions but still managed to grow like-for-like sales by 3.7%, although this was below management’s expectations.

IBM (NSQ: IBM)

Looking for a cheaper way into investing in artificial intelligence? IBM may be worth another look. Admittedly, the shares currently trade on a price earnings ratio of 24 and are trading near their 10 year highs, but other companies which are expected to benefit from AI, such as Amazon and Meta, are trading on PEs of 60 and 30 respectively.

International Business Machines offers consulting services and is benefiting from increased take-up of its hybrid cloud and AI services, seeing revenue growth in all its divisions. Fourth quarter revenues rose 4% to $17.4 billion. “Client demand for AI is accelerating and our book of business for watsonx and generative AI roughly doubled from the third to the fourth quarter," Arvind Krishna, IBM chairman and chief executive officer, said at the fourth quarter results.

Meanwhile, the company is throwing off plenty of cash. "Based on the strength of our portfolio and demonstrated track record of innovation, for 2024 we expect revenue performance in line with our mid-single digit model and about $12 billion in free cash flow,” Krishna adds. The shares are up 53% this year to $195, but analysts at broker BMO Capital Markets think they could reach $210. They also yield 3%.

Phoenix Group (LON:PHNX)

Shares in pensions provider Phoenix Group are down 20% this year to 510p. However, the company is performing well and recently posted a solid trading statement. Phoenix almost doubled its new business net fund flows to around £70 billion – an 80% year-on-year hike – thanks to improvements at its Standard Life branded Pension & Savings and Retirement Solutions division.

In addition, its workplace pension net fund flows almost doubled year-on-year to £4.5 billion, with £2 billion of new scheme assets transferred, including one of the UK’s biggest workplace pension schemes. It also saw bulk purchase annuity premiums written in 2023 increase to £6 billion (from £4.8 billion in 2022). What’s more, management says it has achieved its 2025 growth target of generating £1.5 billion in new business long-term cash two years early. The shares also currently offer a dividend yield of 10%.

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Top cheap shares summed up

These are just a selection of the cheap shares available to buy. Always do your own research. Past performance is not a guide to future performance.

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