Would You Be Better Off Investing In Persimmon plc, Taylor Wimpey plc, BHP Billiton plc & Anglo American Plc Than In The FTSE 100?

Persimmon plc (LON:PSN), Taylor Wimpey plc (LON:TW), BHP Billiton plc (LON:BLT) and Anglo American Plc (LON:AAL) are under the spotlight.

| 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.

Miners and homebuilders have drawn my attention in recent times. 

China is taking some necessary steps to sort out part of its problems, while the UK recovery is well under way, which helps boost household confidence and appetite to borrow. 

Here are a few names worth keeping on the radar if recent trends persist. 

China, Miners, Housebuilders & The FTSE 100

News this week that China had taken action to relax mortgage requirements for second homebuyers is encouraging. I am moderately bullish about China. 

If the government there is serious with regard to monetary and fiscal easing, then the mining sector could be just about to turn the corner. 

If so, I’d be ready to invest in the FTSE 100, which would greatly benefit from rising valuations for miners, but I wouldn’t bet on BHP Billiton (LSE: BLT) and Anglo American (LSE: AAL), unless they were included in a properly diversified portfolio. 

If you feel really brave, you may want to take a look at a couple of homebuilders, of course!

Persimmon & Taylor Wimpey: The Best Of The Lot? 

Persimmon (LSE: PSN) has come under pressure in recent weeks, and it looks like investors are taking profits after a six-month rally during which the stock has recorded a +25% performance. By comparison, the FTSE 100 is up only 5% over the period. 

Persimmon has lost 6% of value in the last month alone, but its fundamentals and prospects remain intact. While it’s true that the shares of most homebuilders look seriously expensive, Persimmon is one of my favorite stocks in the sector because: a) it offers a generous forward yield at 6%; b) its use of capital is efficient, and returns are incredibly attractive; and c) its trading multiples point to value, and it has a strong balance sheet.

I don’t think that other builders, such as Taylor Wimpey (LSE: TW), are much better than Persimmon, although I’d rather invest in Taylor Wimpey than, for example, in Barratt and Berkeley  both of which are a tad overpriced, in my view.

Taylor Wimpey’s six-month performance reads +38.7%, but its relative valuation remains attractive. Along with Barratt, Taylor Wimpey has been the best performer in the peer group since October: its payout ratio is higher than that of Barratt, however — and its forward yield is also 1.7 percentage points higher than that of its rival!

One caveat is that Taylor Wimpey now trades around the average price target from brokers. So, unless analysts decide to upgrade the stock, Taylor Wimpey may find it more difficult to generate the same kind of returns that it has delivered in recent months. 

Do Not Ignore Miners

I am not a big fan of BHP Billiton, and I’d rather invest in Anglo American if I were to add exposure to the mining sector.

BHP is trading some 14% below the average price target from brokers, but bullish estimates suggest upside could be in the region of 40% from its current level.

Of course, BHP could rally if the Chinese economy picks up pace and iron ore prices revert to mean over time. However, I think there is a real risk that BHP may have to trim its payout ratio, which is covered by earnings but is way too high in the current climate, in my view. 

Consensus estimates have fallen since July last year, and may continue to fall for some time. Things are less complicated with Anglo American, although neither miner is very safe at present. In fact, Anglo must divest underperforming assets for which market appetite is scarce. 

Anglo trades at a meaningful discount against BHP, and that’s one reason why you may want to add 2% of Anglo to your portfolio. Volatile earnings render trading multiples less reliable in this environment, but monetary and fiscal easing measures in China will certainly provide a fillip to undervalued stocks in the sector…

(Incidentally, Antofagasta and Teck Resources denied media reports on Monday, according to which the two companies were in talks to merge. What a pity: M&A is much needed in the mining sector, and this is also what could push up stock prices in the mining space!)

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.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »