Is the Taylor Wimpey share price primed to rocket?

Shares of Taylor Wimpey plc (LON:TW) and other housebuilders have begun to rally after a rotten 2018. Is it time to buy?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Following terrific rises after the 2008/09 financial crisis, the share prices of UK housebuilders beat a retreat in 2018. They’ve rallied pretty strongly in recent weeks, but are still well below their highs of last year. Among the FTSE 100‘s big three, Taylor Wimpey (LSE: TW) is further down than Persimmon and Barratt Developments. Moreover, it’s trading on a lower price-to-earnings (P/E) ratio, suggesting it could offer particularly good value.

There are also a number of housebuilders in the mid-cap FTSE 250 index. One of these — Crest Nicholson (LSE: CRST) — released its annual results this morning. Its share price and P/E are even more depressed than Taylor Wimpey’s. Could it be another bargain builder to snap up today?

What’s not to like?

The table below summarises some key value indicators for the four stocks, based on their 2018 financial results (actual or forecast).

Should you invest £1,000 in Crest Nicholson right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Crest Nicholson made the list?

See the 6 stocks

  Share price fall from 2018 high (%) P/E Dividend yield (%)
Barratt 14 8.0 7.8
Persimmon 18 8.6 10.0
Taylor Wimpey 22 7.8 9.7
Crest Nicholson 39 6.6 9.0

As you can see, they’re trading on very low P/Es, with supersize dividend yields. Furthermore, a recent trading update from Taylor Wimpey, and today’s results from Crest Nicholson, paint a reasonably sunny picture. Both companies enjoyed a profitable 2018 and finished the year with net cash on their balance sheets. They also said they’ve strong order books.

Both referred to a few clouds in the sky — notably Brexit uncertainty and customer caution in London and the South East. But overall, the impression given was one of maintaining vigilance in the near term and optimism about the longer term. So why are their P/Es so low and dividend yields so high?

Brexit uncertainty

From our parochial UK perspective, “Brexit uncertainty” seems to be the default explanation for all sorts of things, including a housing market that’s creaking in places. However, when we look as far afield as Canada, the US and Australia, housing markets are similarly teetering or falling. Here are a few recent headlines:

  • “NYC’s Housing-Market Weakness Spreads From Manhattan To The Outer Boroughs” (19 January)
  • “Canada’s Housing Markets End 2018 With A Thud” (15 January)
  • “As Investors Flee Australia’s Housing Bust, Sales of New Houses Plunge to Record Low” (21 January)

Furthermore, the US (like the UK) has a good number of listed housebuilders. You’ll find their share prices have performed in much the same way as their UK counterparts. They’re all down from their highs of last year — e.g. PulteGroup (-22%), D. R. Horton (-30%) and Lennar (-38%) — and on very cheap P/Es. Brexit uncertainty? Really?

Blip or bust?

I believe there’s a common issue hitting many housing markets around the world right now. The post-financial-crisis economic crack-cocaine of low interest rates and massive quantitative easing (QE) pumped up asset prices, including property, to unsustainable levels.

Time has now been called on QE and interest rates are starting to rise. The risk is that house prices are heading for a crash. In a crash, builders’ earnings (and their share prices) typically collapse, dividends are suspended, and there’s nothing to do but batten down the hatches and wait for a recovery.

Are the likes of Persimmon, Barratt, Taylor Wimpey and Crest Nicholson merely suffering a Brexit blip, or are we seeing the beginnings of the bust that always follows a housing boom? Personally, I view the risk of the latter as sufficiently serious to avoid these stocks at this stage.

Should you invest £1,000 in Crest Nicholson right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Crest Nicholson made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

Analysts have upgraded this FTSE 100 stock to Buy. What should investors do?

Associated British Foods shares have been uninspiring for some time. But is it finally time to consider buying the FTSE…

Read more »

Man changing battery on electric bicycle
Investing Articles

Prediction: in 12 months the sizzling National Grid share price could turn £10,000 into…

It's been another solid year for the National Grid share price and the dividend yield is decent too. So why…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 185% in 3 years, why does the market love this FTSE 250 stock

Over the past three years, this stock has vastly outperformed the FTSE 250. Dr James Fox takes a closer look…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing Articles

Looking for growth, dividends, or value? These 3 ETFs could be smart ideas to consider

Exchange-traded funds (ETFs) provide a way for investors to spread risk without sacrificing the possibility of huge long-term returns.

Read more »

Happy couple showing relief at news
Investing Articles

Is the Rolls-Royce share price fast becoming a joke?

The FTSE 100 engineering titan has done brilliantly in recent years. But our writer wonders whether the Rolls-Royce share price…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

Is there a ‘best age’ to start buying shares?

Christopher Ruane weighs some possible pros and cons of waiting to start buying shares for the first time, versus starting…

Read more »

piggy bank, searching with binoculars
Investing Articles

Is it time to look again at the FTSE 250’s worst performers?

Our writer considers the prospects for two of the worst-performing shares on the FTSE 250, with falls of at least…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing For Beginners

Down over 40% in the past year, I think investors should consider these value shares

Jon Smith points out two value shares that have fallen heavily over the past year but are starting to look…

Read more »