January 24, 2022

Cheap UK shares: how I’d invest in FTSE 100 stocks Barratt Developments, Persimmon and Taylor Wimpey now

A few days ago, the UK government issued an upbeat housing market update. It mentioned a 30% increase in construction output in July. Further, it spoke of a 15.6% increase in housing sales in August following the stamp duty holiday. This policy is estimated to have protected 750,000 jobs according to the release. And with the new jobs support scheme, the economy could be more stable in the near future than it might otherwise have been. This could have an even more positive impact on the housing market. If so, battered FTSE 100 real estate stocks should benefit as a result. 

FTSE 100 property biggies under the scanner

However, so far they haven’t. They have actually hit fresh trouble. FTSE 100 housebuilders like Barratt Developments, Persimmon and Taylor Wimpey are under investigation from the Competition and Markets Authority after they reportedly used unfair selling practices. What the investigation finally reveals is another matter, but for now, the fact that they are under scrutiny is doing enough share price damage, especially in a month when the FTSE 100 index is already weak. So far, it is down by 2% from August, the biggest decline seen since March, when the stock market crash happened. 

Weak results have further depressed stock prices. Earlier this month, Barratt Developments reported a 28% revenue fall and a halving in profits for its 2020 financial year. While Persimmon and Taylor Wimpey’s next updates are due in November, going by the overall economic scenario, it’s safe to assume that they will have taken a hit too. 

Alternatives in real estate

But I think property is a cyclical sector in any case, one that is worth considering for the long-term investor. While the FTSE 100 companies in question are facing hard times, they are capable of riding them out. As the economy recovers and their financial health returns, these property biggies may even turn out to be some of the leading stock market gainers. They can start paying dividends again as well. After doing my research, if I am convinced of their merit, I would buy these cheap UK shares now and hold them.

However, I think it is good to consider alternative strategies too. One non-traditional property stock I like and hold is Rightmove, the online real estate marketplace. The future is digital, making its long-term prospects sound. Its leadership position works in its favour too. Not only is RMV less vulnerable to downturns than traditional real estate stocks, it is also likely to benefit during booms when property transactions and values rise. 

Another alternative is the FTSE 250 real estate investment trust Derwent London, which actually increased its interim dividend in August. Its present dividend yield is 3.1%, which is not particularly high. But any company still paying dividends stands out right now. Further, increasing dividends shows a company’s confidence in its own operations. Like all property companies, it too is cautious about the future. However, given its past performance, at the very least I would keep it on my investing radar. 

A Top Share with Enormous Growth Potential

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Manika Premsingh owns shares of Rightmove. The Motley Fool UK has recommended Rightmove. 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.

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