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A Housebuilding Bonanza Will Benefit Persimmon plc, Bellway plc And Taylor Wimpey plc

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housebuildingThere is little sign of the UK housing boom slowing down, with PMI (purchasing managers’ index) data this week confirming that the construction sector is expanding at a rapid rate. Indeed, it grew for the 15th successive month and was the strongest performing sector in July’s PMI. It currently stands at a hugely impressive 62.4, with a figure above 50 denoting expansion.

Clearly, this is great news for house builders such as Persimmon (LSE: PSN), Bellway (LSE: BWY) and Taylor Wimpey (LSE: TW), with all three companies continuing to benefit from seemingly insatiable demand for housing and an improving economic outlook. Despite this, shares in the three companies still offer a great deal for investors and appear to be well worth buying at current levels.

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Super Value

Although the house building sector is enjoying a purple patch, house builders still offer top-notch value for money. For example, Persimmon trades on a price to earnings (P/E) ratio of just 10.8, while Bellway and Taylor Wimpey have P/Es of just 10 and 10.4. All of these compare very favourably to the FTSE 100, which has a P/E of 13.5 and which itself looks good value at present levels.

Growth Potential

As mentioned, house builders are enjoying an extremely strong period at present, with low interest rates and an improving economy helping to boost their profitability. Indeed, growth rates in earnings of 22% (Persimmon), 23% (Bellway) and 33% (Taylor Wimpey) are forecast for next year. All of these growth rates are exceptionally strong and beat many ‘high growth’ stocks in the index when it comes to bottom line increases. In fact, even the lowest growth rate of the three (22%, Persimmon) is around four times the expected growth rate of the FTSE 100 next year, which provides further evidence of the growth potential on offer.

Looking Ahead

Furthermore, when you consider that the Bank of England has stated that interest rates are due to stay low for quite some time yet, it is clear that the longer-term growth potential is considerable for house builders. Indeed, the Bank of England has stated that house prices are so high due to a lack of housing supply, which could mean further price increases and reliable demand for new houses. This should provide not only growth, but high earnings visibility moving forward.

With shares in the three companies underperforming the FTSE 100 slightly during 2014 (down between 0.3% and 2.5% versus a fall of 0.5% for the wider index), market sentiment appears to be rather weak. However, if your plan is to buy low and sell high, now could prove to be a great time to buy Persimmon, Bellway and Taylor Wimpey.

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Peter Stephens owns shares of Persimmon, Bellway and Taylor Wimpey. The Motley Fool has no position in any of the shares mentioned.

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