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I am looking for the best cheap UK stocks to buy for my investment portfolio. and the following FTSE 250 Stocks have caught my attention recently.
They are also among the top 10 most popular stocks among investors using the Freetrade stock trading service. Each trades at a minimum price-earnings (P/E) multiple and price-to-book (P/B) ratio.
Should investors buy them today?
#1: ASOS
Freetrade analyst George Sweeney notes that ASOS (LSE: ASC) is trading with a forward P/B ratio of 0.6. The online retailer is also trading with a higher P/E ratio of 20.5x, a rating he says could be attractive to value investors.
Sweeney points out that “its stock price has been in free fall lately” and that investors should “be careful to catch a falling knife.”
However, the company has skyrocketed this week after announcing “significant progress” in improving profitability. It’s closing offices and warehouse spaces and pulling underperforming brands to boost its fortunes (the company plans to shed 35 unprofitable labels in the coming months).
These moves could help the ASOS share price rally strongly. But I still wouldn’t buy the retail FTSE 250 for my investment portfolio. Sales in constant currency plunged 6% in the four months to December to £1.4bn. They could also continue to fall as the cost of living crisis continues.
In the longer term, meanwhile, it faces increased competition as rivals improve their own online operations. Demand for its fashion products could also suffer as concerns grow about the environmental impact of ‘fast fashion’. I believe ASOS’s low share price reflects these dangers.
#2: International Distribution Systems
owner of the royal mail International Distribution Systems (LSE: IDS) has also been popular with Freetrade users. Sweeney points out that the messaging service “has caught the eye of many investors as a UK value stock that deserves a second look.”
He notes that the FTSE 250 company “has a P/E ratio of 0.4, a P/E ratio of 9.1 times and a stock price showing signs of recovery after a difficult year.”
IDS can’t stay out of the news right now. Strikes brought its Royal Mail operations to a standstill in December and more strikes could happen in the coming months. Also this week was affected by a major cyber attack that deterred customers from sending packages abroad.
In fact, the messenger is fighting battles on several fronts. The card market is in a state of long-term decline. And IDS must invest large sums of money to improve its parcel operations to compensate for this.
It is also facing a sharp drop in revenue as the British economy shrinks. This is all the more worrying given the huge debts on the company’s balance sheet (net debt was £1.5bn in September).
Online retail looks set to expand steadily over the next decade. And messengers like IDS will play an essential role in this growth. Solid progress at the company’s international GLS division could also boost earnings much more. But overall I think there are better cheap UK stocks out there today.
