The Motley Fool

Should You Buy Bellway plc, Persimmon plc Or Redrow plc?

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.

housebuilding

This week’s positive results from Bellway (LSE: BWY) provide yet more evidence that house building could be the place to be. Indeed, the company reported that its forward order book has risen by 36% due to an improved macroeconomic outlook and increased consumer demand.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

However, are there better options in the house building sector? And are Persimmon (LSE: PSN) and Redrow (LSE: RDW) better buys than Bellway?

Growth Potential

Clearly, there is tremendous growth potential in the house building sector. That’s because there is a huge mismatch between the number of houses demanded in the UK (particularly in the south east) and the number of homes being built. Indeed, the UK is so far behind in terms of house building that it seems the likes of Bellway, Persimmon and Redrow will have little difficulty in selling houses for many years to come, barring a severe recession of course.

Furthermore, the macroeconomic outlook continues to improve. The UK economy is among the fastest growing developed economies in the world and, with interest rates set to stay low for a good while yet, there could be a house building boom in the pipeline.

However, when it comes to shorter term growth prospects, Bellway seems to lead the field. That’s because it is forecast to grow its bottom line by a whopping 67% this year. Certainly, Persimmon and Redrow are not far behind, with growth forecasts of 37% (Persimmon) and 64% (Redrow) expected in the current year. However, Bellway appears to be the fastest growing of the three at present, which could attract investors who subsequently bid up the price of the company’s shares.

Top Notch Value

Despite strong growth prospects, Bellway trades at a low valuation. For instance, its price to earnings (P/E) ratio is just 9.9. That’s 25% lower than the FTSE 100’s P/E of 13.2 and compares favourably to Persimmon, which has a P/E of 10.7 although Redrow goes one better as it has a P/E of just 9. Clearly there is superb value across the sector, with Bellway losing out slightly to its smaller peer, Redrow.

Dividend Yield

Where Bellway makes the ground back up though is in terms of dividend yield. That’s because it currently yields a hugely impressive 3.3% and, in addition, the dividend per share is forecast to grow by a whopping 25% next year, as strong earnings growth allows the company to raise distributions to shareholders.

Although Persimmon’s yield of 6.2% is much higher, its dividends are set to be unevenly spaced out and, as such, Bellway may offer a more consistent income stream for investors. Meanwhile, Redrow is some way behind its two peers on a yield of 1.6%, although it clearly has the potential to raise dividends due to its previously mentioned strong growth prospects.

Looking Ahead

With earnings growth that beats its two rivals, Bellway appears to be the most attractive growth play of the three house builders. Certainly, Redrow offers better value, but its yield is less than half that of Bellway, while Persimmon offers a higher yield but less value. Overall, Bellway appears to be the most consistent of the three and, although they all appear to be well worth buying, Bellway could prove to be the best performer moving forward.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Peter Stephens owns shares in Bellway and Persimmon. 

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.