I’ve noticed that many UK shares are effectively on sale. This is because soaring inflation and rising interest rates have dampened market sentiment and pushed share prices down.
One stock I like the look of currently is Taylor Wimpey (LSE: TW.). Here’s why.
Residential house builder
Taylor Wimpey is one of the largest home building businesses in the UK. It was created by a merger of George Wimpey and Taylor Woodrow in 2007. It buys land, develops it, constructs homes, and sells them.
With UK shares falling, what’s happening with Taylor Wimpey shares currently? As I write, they’re trading for 115p. At this time last year, they were trading for 127p, which is a 9% drop over a 12-month period.
Recent results show an opportunity
Taylor Wimpey released half-year results yesterday. Despite obviously tougher conditions hampering the market overall, I believe these results displayed good resilience by the business and could translate to future growth and returns.
Taylor Wimpey revealed that full-year completions should reach 10,000 to 10,500, which is the upper end of its aims. Operating profit levels dropped by 45%. Earnings per share dropped but the interim dividend increased by nearly 4%.
The way I view these results is that Taylor Wimpey, and many other UK shares in the home building sector, are experiencing a very tough period, one of the worst in many years. The fact it is able to stick to its original completion target, as well as turn over a decent enough profit to increase its dividend, speaks volumes to me.
Let’s move onto Taylor’s current valuation then. At present, the shares look good value for money on a price-to-earnings ratio of just six. When you add to this the dividend yield of over 8% on offer, this all looks enticing, coupled with the recent results. I am aware that dividends are never guaranteed.
UK shares have risks
Taylor Wimpey does have risks associated with it. To start with, rising interest rates spell bad news. This is because mortgage rates have increased and therefore have become harder to obtain. In turn, this could impact sales, performance, and investor returns.
In addition to this, many experts believe a housing crash could be around the corner, like in 2009. This is bad news as prices dropped substantially and many housebuilders had to borrow to keep the lights on and saw performances dip dramatically and returns cancelled. I will keep an eye on this development.
Overall I believe Taylor Wimpey is in a great position right now. The housing market is favourable as there is a shortage of homes in the UK, with rising demand. This could translate into profit and investor returns. The shares look good value for money and currently pay an above-index average dividend yield too, despite some shorter-term headwinds at present.
I would be willing to add some Taylor Wimpey shares to my holdings when I have the spare cash to do so.
