Shares in prime housebuilder Berkeley Group (LSE: BKG) have made a poor start to 2016, being down by 18% year-to-date. A key reason for this is concern surrounding demand for luxury properties in London, with a combination of factors having the potential to hurt pricing in super prime property.
The first is the prospect of a Brexit, which would make Britain’s near-term future less certain. This could dent demand for property from foreign buyers who had previously seen Britain as a low-risk place for property investment. The second is that the prices of prime London properties are now so high that yields are being compressed towards historic lows. With interest rate rises on the medium-term horizon, this could make property even less enticing.
Furthermore, with China’s economy slowing, the oil and gas industry enduring a difficult period and the global economy also facing an uncertain future, foreign buyers may decide to stay in ultra-low-risk assets over the short run. As such, prime property prices could fall.
Despite this, Berkeley still offers considerable share price gains in the long run. A key reason for this is its valuation, with Berkeley trading on a price-to-earnings (P/E) ratio of just 7.7. This indicates that it offers a very wide margin of safety so that even if forecasts are downgraded, Berkeley could still be a relatively strong performer.
Recovery ahead?
Also recording a share price fall in recent months has been Standard Chartered (LSE: STAN). Its shares are down by 16% year-to-date and a key reason for this has been worsening investor sentiment towards China-focused stocks. And with Standard Chartered reporting a loss for 2015, it’s of little surprise that its shares have fallen so heavily.
However, with Standard Chartered having a new strategy that’s expected to return it to profitability this year and create a leaner, more efficient and better organised bank, its shares could begin a recovery as the market begins to price-in improved financial performance. Furthermore, Standard Chartered trades on a forward P/E ratio of just 11, which indicates that despite there being risks to buying a slice of it, the rewards from an upward rerating appear to fully offset them.
Elusive profits
Meanwhile, Monitise (LSE: MONI) has fallen by 85% in the last year. However, its shares have mounted a comeback of sorts in recent days, rising by 60% in the last week due to an announcement regarding the potential sale of Monitise’s Markco Media division.
Clearly, investors are hopeful of a deal, but while it has the potential to boost Monitise’s share price further in the short run, the business continues to struggle. It appears to still be some way off profitability. And despite it having an excellent product in a space that’s enjoying a tailwind from increasing demand for mobile payment solutions, Monitise has not yet turned a great product into a great business.
So, while further gains on the back of news flow can’t be ruled out in the short run, Monitise still appears to be a stock to watch, rather than buy, right now.
