Bellway plc, Interserve plc & Virgin Money Holdings (UK) plc still show huge growth potential despite dips

Why now could be a great time to buy Bellway plc (LON: BWY), Interserve plc (LON: IRV) & Virgin Money Holdings (UK) plc (LON: VM).

| 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.

Before the fateful Brexit vote last week, I was doing one of my regular searches for shares with good growth prospects… and what do you know? Two of them have been hit hard by the referendum result. Does that mean they’re no good now, or are they even better bargains?

Solid housing

Housebuilder Bellway (LSE: BWY) was looking very good on a forward P/E of nine with a PEG ratio for this year of 0.3 (where growth investors typically see 0.7 or less as a good sign) — that was when the shares were changing hands at around £27 apiece, and since then they’ve lost 37% to just 1,700p, as fears of a housing collapse grip the City’s traders.

Now, there is a big risk to the UK’s housing market, for sure, at least partly from European investors who will be a lot less keen to risk their money here. But long-term profits for housebuilders do not depend on short-term property prices, and if demand falls, prices will fall and the houses will still be sold — to grateful occupants, I hope.

But that means land prices would fall too, and cash-rich builders like Bellway should be able to top up their land banks at low prices — just as they did during the last financial crisis. Long term, I reckon housebuilders, including Bellway still show great growth potential.

Support woes

Support services group Interserve (LSE: IRV) has had a horrible time, with its shares losing 56% over the past five years — they had been rallying slightly, but have fallen back 15% since Thursday, to 266p. But the firm’s earnings per share have actually been picking up over the past few years, and an expected standstill over the next few years puts the shares on a P/E of only a little over four — and that’s with a forecast dividend yield of 8.6%!

So, why so cheap? Well, after Interserve’s acquisition of Initial last year, its net debt rose to £309m, and that’s a lot for a company with a market cap of £385m and pre-tax profit of just £79.5m. Coupled with some big one-off costs this year, I think there’s a good chance the dividend will be cut,  even though it’s currently reasonably well covered by forecast earnings.

But the current super-low valuation means Interserve could still offer a decent yield, and with the City’s brokers putting out a strong buy rating on the shares, I see good long-term growth potential — even if we could still see another volatile year in the short term.

Banking carnage

You don’t need me to tell you that banking sector shares have collapsed since the referendum, and the short-term uncertainty means there’s no surprise there at all. Lloyds Banking Group shares are down 28% and Barclays are down 31%,  which I think is seriously excessive, but the one really takes the biscuit is Virgin Money (LSE: VM), whose shares are down a massive 42% since the referendum, plummeting to 212p.

Sir Richard Branson had said he expected Virgin shares to “take a pounding” in the event of a ‘leave’ result and that there could be job losses, and the challenger bank does face danger from its focus on mortgage lending should we really see a housing slump. But if the bank can pull through the short-term pressure (and I see no reason why it shouldn’t) then it could have some serious longer-term growth prospects.

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 considered so you should consider taking independent financial advice.

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays. 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

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

How I’m aiming to become a Stocks and Shares ISA millionaire!

The Stocks and Shares ISA is an excellent vehicle for investments. In fact, many investors have become ISA millionaires. Here's…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

The Scottish Mortgage share price is on the up! Here’s why I’d buy

After a poor first half of the year, the Scottish Mortgage share price is beginning to rise. Here, this Fool…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I be grabbing cheap Lloyds shares?

Lloyds shares have underperformed in recent years. Here, this Fool explains why he's still considering the stock for his portfolio.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

How I’m using UK dividend shares to try and turn £20,000 into £100,000

Our writer has ambitious investment goals -- and patience. Here he explains how he's buying UK dividend shares to try…

Read more »

Middle-aged lady in wheelchair writing on whiteboard
Investing Articles

I’m taking a defensive stance by investing in the FTSE ahead of the recession

The FTSE has outperformed several indices in 2022, including the S&P 500. Jacob Ambrose Willson believes it can be used…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy BP shares today?

BP is generating huge profits right now. Here, Edward Sheldon looks at whether he should buy shares in the oil…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Should I buy Rolls-Royce shares after the latest results?

Jon Smith runs over the key points from half-year results for Rolls-Royce shares to see if any green shoots are…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A FTSE 100 stock that I never intend to sell

Hunting for undervalued stocks, Andrew Mackie explains why he recently bought more of this FTSE 100 powerhouse.

Read more »