Have £5k to invest? I’d buy these two undervalued property stocks

These two property companies offer an attractive blend of income and capital growth writes Rupert Hargreaves.

| 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.

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 UK’s largest homebuilders tend to get a lot of press coverage, but one company that flies under the radar is MJ Gleeson (LSE: GLE). This £400m market cap firm has two primary lines of business, homebuilding on brownfield land in the north of England and strategic land trading.

Like many of its peers, the homebuilding business is experiencing surging demand right now. Last year, the company reported a 14% increase in earnings per share across the group, and this year analysts have pencilled in a smaller, but still attractive 8.4% increase in profits for the year. And it looks as if Gleeson is well on the way to meeting this target.

Positive trading

It today updated investors on its trading for the financial year ended 30 June, ahead of full-year results, which will be released in mid-September.

According to the update, over the past 12 months the homebuilding division, Gleeson Homes has “delivered its largest annual volume growth selling 1,529 homes during the year, a 25% increase compared with the previous year’s total.

It doesn’t look as if this division is going to slow down any time soon. Gleeson Homes is currently active on 69 building sites and anticipating an increase to 80 or more sites during the coming year, the trading update reports. Management reckons this business is “comfortably on track” to meet its stated volume target of 2,000 homes per year by 2022. The strategic land business is also seeing strong demand for its services. Overall, management believes Gleeson will “comfortably” meet City growth expectations for the year.

Looking at this growth, I think the stock is currently undervalued as it is dealing at a forward P/E of just 12.3. It also supports a dividend yield of 4.6%. With earnings per share set to increase by nearly 20% between now and 2020, I think a mid-teens earnings multiple might be more appropriate for the business. A net cash balance of £30m also leads me to conclude that the market is currently undervaluing this stock.

London-centric

Another property stock that I like the look of right now is Great Portland Estates (LSE: GPOR).

Over the past few months, shares in this London-focused real estate investment trust have drifted lower and are now trading significantly below its latest reported net asset value. Indeed, at the end of May, the company reported a net asset value per share of 853p, 22% above the current price of 700p.

It is difficult to see why investors are giving this company such a wide berth. It would make sense if the business were suffering from falling rents and rising vacancy levels, but it isn’t.

According to a trading update from the trust today, at the end of June, the company’s vacancy rate was just 4.2%, down from 4.8% at the end of March. Meanwhile, the property business has managed to increase its rent roll, settling seven rent reviews during the second quarter with an average uplift of 17.2%. Great Portland also signed nine new lettings and has 12 more under offer with a total potential income of nearly £5m.

These figures tell me that despite the market’s ambivalence towards Great Portland, the underlying business is still powering ahead, and that’s why I think this undervalued property champion could be a great addition to your portfolio.

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.

Rupert Hargreaves owns shares in Great Portland Estates. 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

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi shares hit £5 by 2030?

After a strong start out of the blocks this month, our writer asks whether Raspberry Pi shares could move further…

Read more »

Close-up of British bank notes
Investing Articles

Five 5%+ yielders I’d buy for an ISA today!

Our writer identifies a handful of FTSE 100 and FTSE 250 firms each yielding at least 5% he'd happily buy…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

5 stocks with 5%+ yields I’d love to buy and hold in a Stocks and Shares ISA

Harvey Jones is keen to add these five FTSE 100 high-yielders to his Stocks and Shares ISA, ideally before they…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d target £880 of passive income annually, spending £10K now on this FTSE 100 share

Our writer explains how he would add to his diversified portfolio happily by investing in this FTSE 100 passive income…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

3 reasons I think the Scottish Mortgage share price could keep rising

Christopher Ruane explains a trio of reasons he thinks the once-mighty Scottish Mortgage share price could be set to increase…

Read more »

Syringe and vial on blue background
Investing Articles

Is this forgotten FTSE share about to make investors rich all over again?

Not long ago, this FTSE share was all the rage before demand dropped off and things went south. Is it…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d use these 5 Warren Buffett approaches to build wealth

Christopher Ruane outlines a handful of investing lessons from billionaire Warren Buffett that he thinks can help a small investor…

Read more »

US Stock

Nvidia stock: 3 things investors need to know as it surges towards $150

Nvidia is a stock that's had an extraordinary run in 2024. Edward Sheldon highlights some important things investors should know.

Read more »