Although fears of a collapse in UK house prices continue to recede, this is still not reflected in the stock values of many London-quoted builders. And I believe Bellway (LSE: BWY) is one such share trading at an unmissable discount.
The underlying strength of the housing market was underlined by latest ONS data which showed home values move 7.2% higher in December, speeding up from the 6.1% advance punched in November and reflecting the country’s huge supply and demand imbalance.
Whilst the era of double-digit earnings growth may be drawing to a close as home values likely grow at a slower pace than in prior years, the City still expects Bellway’s bottom line to keep on rising. Indeed, growth of 5% and 4% is chalked in for the periods to July 2017 and 2018 respectively.
And these projections result in P/E ratios of just 8 times and 7.7 times, well below the bargain-basement threshold of 10 times. But Belllway is also a tantalising value pick for income investors, the housebuilder throwing up yields of 4.2% for 2017 and 4.5% for 2018.
Construction corker
A robust order book has encouraged investors to plough back into Costain (LSE: COST) recently, the engineering giant springing to all-time highs of 400p per share this week.
Like Hill & Smith, Costain is benefiting from the billions being splashed out on British infrastructure, and huge investment in the country’s energy, water and transportation saw the order book remain around record levels of £3.9bn as of the close of December.
And the number crunchers expect Costain to keep grinding out the contract wins, underpinning predicted earnings advances of 18% this year and 9% in 2018. These figures generate very-decent P/E ratios of 12.6 times and 11.5 times, while dividend yields also clock in at a chunky 3.7% and 4.2% for this year and next.
Returns set to rocket?
With defence spending firmly back on the agenda, BAE Systems (LSE: BA) has also seen its share price lift off to fresh record peaks above 600p. But I believe the stock still offers terrific value at current prices.
Indeed, BAE Systems boasts P/E ratios of 14.2 times for this year and 13.3 times for 2018, beating a forward mean of 15 times for the rest of the FTSE 100. On top of this, the weapons builder also beats an average dividend yield of 3.5% for Britain’s blue chips, with yields registering at 3.6% for 2017 and 3.7% for 2018.
After suffering some years of earnings turbulence, the City expects BAE Systems to get back on the road to sustained growth with advances of 9% and 7% for 2017 and 2018 alone.
Renewed calls by US Secretary of Defense James Mattis this week for NATO members to increase arms spending underlines the pressure on Western nations to bulk up their arsenals, not to mention the increasingly-fragile geopolitical situation. And this scenario should set defence giants like BAE Systems up for a period of robust revenues growth.
