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Every month, we ask our freelance writers to share their top ideas for value stocks to buy with investors — here’s what they said for August!
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Barclays
What it does: Barclays is a UK-listed bank, with retail banking and international investment banking arms.
By Alan Oscroft. This is a tricky choice, as I see so many good value buys among housebuilding and finance stocks.
Lloyds Banking Group comes close, but right now I have to go for Barclays (LSE: BARC).
The forecast dividend yield stands at 4.4%. That’s not the biggest, but it should be well covered by earnings.
The bank is on a price-to-earnings (P/E) ratio of just five. I’d expect stocks under pressure to be valued lower. And there’s clear economic risk this year.
But it’s only about a third of the long-term FTSE 100 average P/E. And that has to be too cheap, right?
I like Barclays’ international strength, but it does bring added risk. Investment banking in the US has the ability to terrify investors these days.
And with the bank failures seen this year, I’m not surprised. But Barclays is more tightly regulated than most US banks and, I think, better managed.
Alan Oscroft has positions in Lloyds Banking Group
International Consolidated Airlines Group
What it does: IAG is an Anglo-Spanish airlines conglomerate. It owns British Airways, Iberia, Vueling and Aer Lingus.
By Dr James Fox. International Consolidated Airlines Group (LSE:IAG) shares trade at just short of a third of their pre-pandemic levels. In recent years, the industry has seen two massive shocks – Covid-19 and Russia’s war in Ukraine – and it’s reflected in the valuation.
However, travel demand is booming. At the time of writing, IAG is yet to release its quarterly report, but we can see the impact of this demand on its peers. easyJet just predicted a record-breaking summer.
Investors are certainly being cautious with the sector, and there are concerns that monetary tightening will eventually have an impact on discretionary spending, namely travel.
But we have to look at long-term trends. With more and more people entering the global middle class, air travel demand could more than double by 2040. With this is mind, several brokers have price targets that are more than double the current IAG share price. It’s also why I’ve been topping up.
James Fox owns shares in IAG.
Safestore
What it does: Safestore is the owner and operator of self-storage facilities for consumers and businesses across the UK and Western Europe.
By Zaven Boyrazian. The self-storage industry isn’t the most glamorous. But, leasing storage is proving remarkably lucrative. The low fixed costs of operating facilities allow firms like Safestore (LSE:SAFE) to enjoy rental operating profit margins of over 50%!
Safestore, in particular, has proven itself to be a cash cow. So much so that dividends have increased more than 400% in the last decade, making it one of the best-performing income stocks in the FTSE 350.
Now that management is forming joint ventures in Europe, the firm is attempting to replicate its stellar performance abroad. And if successful, dividends may continue to rise substantially for the foreseeable future.
Rising interest rates make its growing pile of loan obligations a concern. After all, the more capital being gobbled up by debt servicing costs, the fewer funds there are for shareholder payouts. But at a P/E of just 6.9, this real-estate stock looks seriously undervalued, in my opinion.
Zaven Boyrazian does not own shares in Safestore.
