So far, 2023 has not been a great year for large-cap UK shares. Indeed, the elite FTSE 100 index is up less than 0.5% since 30 December 2022. And over one year, the Footsie is up 2.8% (all returns exclude cash dividends).
The FTSE 100 is a flop
What’s more, the UK’s main market index has been a disappointment over five years, gaining just 0.7%. In contrast, the US S&P 500 has risen by 55.6% over the same period. In short, owning shares in large UK-listed businesses has mostly been a thankless task since 2018 (and before).
However, after lagging other major stock markets, the FTSE 100 looks cheap as chips to me these days. It trades on a lowly 10.8 times earnings, delivering an earnings yield of 9.3%. Also, its dividend yield of around 4.1% a year is covered almost 2.3 times by earnings. To me, these are strong signals to buy British.
My worst FTSE 100 share
Then again, I also thought UK stocks looked too cheap last year, so my wife and I went on an extended shopping spree for FTSE 350 shares. When it was done, we owned 15 new FTSE 100 stocks and five new FTSE 250 holdings.
While we’re largely happy with our new shares, I have made a couple of howlers. To be honest, that’s almost to be expected, given that I picked 20 new stocks. Nevertheless, here is the dirtiest dog from my FTSE 100 bargain hunt.
My FTSE failure: Persimmon
The shares of housebuilder Persimmon (LSE: PSN) were my worst stock pick of 2022/23. In late July of last year, we paid an all-in price of 1,856p a share for our stake in the York-based property company. We did so after the share price had already fallen £10 from its end-2021 close of 2,856p.
Unfortunately, Persimmon stock had much, much further to fall. It finally bottomed out at its 2023 low of 953p on 7 July. At that point, we were nursing a paper loss of almost half (-48.7%). Ouch.
As I write, the share price has recovered to 1,071p, valuing this group at £3.4bn. This collapse in its market value led to Persimmon being expelled from the FTSE 100 in the latest quarterly review on 30 August. Then again, the stock is up 8.8% from last week’s lows, so perhaps this is a turning point?
Given the state of the UK property market right now, I wouldn’t buy housebuilder stocks shares. Elevated inflation, sky-high energy bills, and rising interest rates are hammering house prices. Also, sales are nearing 11-year lows and mortgage approvals fell by a tenth from June to July.
With more pain to come for housebuilders, I wouldn’t buy this particular stock today. That’s largely because Persimmon slashed its dividend by 70% in anticipation of lower profits and margins.
That said, will we sell not our stake, because I have no idea when the next housing recovery will arrive. And with the share price trading at similar levels to March 2013, Persimmon could be a recovery play for patient investors. So that’s why I haven’t ditched my #1 dog from the FTSE 100!
