Under a pound, are these the cheap shares for me?

I keep looking for cheap stocks to buy for my portfolio. Cheap isn’t just about price. It’s about value? And what do I pay compared to what I get?

Shares that sell for money may seem cheap, but they don’t always offer a good price. Lately, I’ve been buying more shares in one company for my portfolio while selling in another. Both shares sell for less than a pound and I think they qualify as cheap shares in some ways. So why do I prefer one over the other?

Vodafone

Share I decided to sell the mobile operator Vodafone (LSE: VOD). I continue to see a lot to like about the company. It has a good brand and a leading position in many markets in Europe and Africa. I expect long-term demand for telecommunications and data services to grow. It can be annoying to switch providers, which means that many customers are willing to pay relatively high prices.

Vodafone trades at a price-to-earnings ratio (P/E) of 15. That may not seem cheap. But I think future earnings potential could be higher. The company has hinted that parts of its business may be operating more than they currently do. I think a strong industry position gives Vodafone pricing power that is not fully reflected in current earnings. On that basis, Vodafone shares look cheap to me at current prices.

So have I sold it? Now, I think that there is a great offer in the UK stock market that I have reorientated my portfolio to take advantage of it. That includes selling Vodafone shares.

What worries me about Vodafone is the debt. The company has been slimming down this year, selling its majority stake in Vodafone Ghana, along with its businesses Vodafone Hungary and Vodafone Egypt. But with net debt of €46bn in the latest financial results, the company’s balance sheet makes me uneasy even if an asset sale like this could generate cash.

With the current share price in pennies, Vodafone offers a dividend yield of 7.8%. That’s certainly attractive – but I see a risk that the company may cut dividends in the future to help reduce debt, as it has in the past.

ITV

So what cheap stocks should I buy? Among the latest purchases are broadcasters ITV (LSE: ITV). I already own the stock, but added it to my position.

In the new results, the company confirmed that the business remains strong. Revenue last year rose to £3.7bn and profit after tax also rose, to £388m. But the current share price means that the P/E ratio for ITV is only 7. That seems cheap to me.

In part that reflects investor concerns about risks such as declining advertising revenues from terrestrial television and the cost of expanding the company’s digital footprint. But I see the business as doing a good job of building a digital presence while retaining its traditional cash cow. The dividend yield is 5.9%.

I think Vodafone and ITV are both cheap shares in their own way. But the risk of a dividend cut at Vodafone due to its huge debt pile has me on my toes – and buying more ITV shares.