One simple way that value chasers can make a fortune from the FTSE 100

Royston Wild looks at a FTSE 100 (INDEXFTSE: UKX) stock grouping that could make you rich.

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100 can be a tricky place for investors to chart a course. There is no shortage of cheap stocks — by which I mean shares whose price falls inside the widely-considered value terrain of 15 times or below — but some of them are risk-laden basket cases just waiting to decimate your investment portfolio.

That said, there are plenty of bona fide, beautiful bargains that I reckon should deliver exceptional long-term returns, like London’s listed housebuilders.

Build a fortune

Only a fool would suggest that conditions in the UK housebuilding market haven’t changed considerably since the Brexit referendum smacked house sales, allied with changing legislation which has decimated demand from buy-to-let landlords.

But there remain plenty of reasons to expect the Footsie’s listed construction giants to deliver brilliant profits growth in the years ahead. And I’ve put my money where my mouth is, what with splashing out on Barratt Developments and Taylor Wimpey in recent times.

Investor appetite for the property builders has disappointed in 2018 following the blockbuster share advances of last year. However, the outlook for these firms remains strong thanks to the meagre housing stock that is propelling demand for new-build places.

And this is evidenced in the steady, (mostly) robust stream of financial updates since the turn of the year. This month Barratt paid testament to its “healthy forward order book;” Persimmon reported “healthy trading” that saw “total enquiry levels running circa 6% ahead of the prior year;” and in April Taylor Wimpey described the “solid consumer demand [that] continues to drive a healthy sales rate.”

The going has been harder for The Berkeley Group due to its significant exposure to the suppressed London market, a region where buyer activity could continue to suffer in the near-term as the Brexit saga drags on. Still, the long-term outlook in the capital and in the surrounding areas remains solid as government’s lack of a detailed homebuilding strategy means that supply is likely to continue lagging demand in the years ahead.

Dividend winners

At any rate, Berkeley Group’s current valuation, like those of its FTSE 100 rivals mentioned above, factors-in the chances of this current disruption to sales activity persisting for a little longer than the City currently envisages.

Indeed, all four companies carry forward P/E ratios below the widely-regarded bargain benchmark of 10 times, leading with Barratt which carries a rock-bottom multiple of 8 times.

What has really attracted me to these housebuilders, however, is the prospect of plump dividends continuing to be shelled out, during the medium term at least.

Each one of Barratt, Taylor Wimpey and Persimmon carry prospective yields more than double that of the big-cap average. These stand at 8.5%, 8.7% and 9.5% respectively. And with earnings expected to continue heading north at all three businesses over the coming period, and cash generation remaining extremely strong as well, I reckon the builders are in great shape to meet current dividend projections from the City.

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 assessed. Consider taking independent financial advice.

Royston Wild owns shares  in Taylor Wimpey and Barratt Developments. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

After crashing 50%, is now the perfect time to buy this world-class FTSE 250 share?

The worst-performing share on the FTSE 250 over the last year is also the most exciting one of all. How…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: July’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Is this one of the FTSE 100’s best-value growth shares?

Looking for great-value recovery shares to buy today? Based on City forecasts, this could be one of the best that…

Read more »

Investing Articles

Will the Tesco share price hit a 10-year high in 2024?

Up from 200p less than two years ago, the Tesco share price has enjoyed impressive growth lately. Now I'm considering…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Nearing its 12-year low, this FTSE growth stock could be the bargain of the year!

Harvey Jones has happy memories of owning this FTSE 100 growth stock. Now he's wondering whether to take a trip…

Read more »

Investing Articles

BT share price: a bargain or one to avoid?

This Fool has been keeping tabs on the BT share price. Despite looking cheap, he's steering clear of the stock…

Read more »

Electric cars charging in station
Investing Articles

Where will Tesla stock be in 5 years? Here’s what the experts say

The analysts' outlook for Tesla stock in the next few years seems to be all over the place, as the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

3 reasons why I predict UK shares will soar over the next 12 months!

Our writer believes there are plenty of reasons why UK shares will do well over the next year or so.…

Read more »