Although latest data from the homes market may have sent a chill down many investors’ backs, I reckon the likes of Berkeley Group (LSE: BKG) remain exceptional stock selections.
Data circulated late last week from HM Revenues and Customs showed home sales fall 40.9% year-on-year in March, to 102,810 properties.
While a shocking figure at first glance, this in fact does not present a rounded picture of the homes market. Indeed, HMRC noted that this year’s colossal fall can be attributed to the “unusually high transaction count” last March as buyers jumped in before buy-to-let changes, taxation alterations on second homes and buyer activity before the EU referendum.
Rather, a backcloth of favourable lending conditions is keeping home sales ticking steadily higher, with HMRC noting a 0.5% rise between February and March. And the ongoing price war between banks and building societies should continue to fuel buyer demand, in my opinion (Yorkshire Building Society launched a record low 0.89% mortgage rate last week, for example).
And Berkeley Group underlined the robustness of the UK housing market in March. The FTSE 250 builder commented that “the housing market in London and the South East has now stabilised” since June’s historic vote, and added that “enquiry levels remain robust, cancellation rates are at normal levels and pricing continues to be resilient and above business plan levels.”
While the property play’s share price has detonated in recent months (Berkeley has jumped 38% in six months and is currently at 11-month peaks), I reckon the stock — like many of its housebuilding peers — has much further to run.
And Berkeley’s very low valuations certainly leave scope for future share price strength. Although earnings growth is anticipated slow to 1% in the year to April 2018 from 61% in the outgoing period, this still creates a P/E ratio of just 7.4 times.
Meanwhile the business also offers plenty of upside for dividend chasers. City predictions that Berkeley will raise a dividend of 190p per share for fiscal 2017 to 198.9p in the forthcoming year creates a mammoth 6.1% yield.
Car insurance giant Hastings Group (LSE: HSTG) has been no stranger to stratospheric share price strength in recent times, either, the stock gaining 20% since the start of the year and striking fresh record peaks just this week.
And this ascent comes as little surprise as car insurance premiums continue to rocket and Hastings grabs custom from its competitors. The business saw the number of live policies jump 15% last year to 2.35m, it advised last month, as its share of the market rose to 6.5%, up from 5.8% in 2015.
And Hastings Group still delivers stunning value at the current share price. With the insurer expected to recover from last year’s 10% earnings fall with a 27% advance in 2017, investors can tap into an exceptional P/E ratio of 15.1 times, in line with the widely-considered value benchmark of 15 times.
With cash heading through the roof (retail cash generation climbed 21% last year to £98.1m), Hastings is expected to keep hiking the dividend as well. Current forecasts suggest an 11.7p reward is on the cards, up from 9.9p last year and yielding an impressive 4.1%. I reckon the insurer is a terrific pick at current prices.