There are some UK shares I would avoid like the plague right now due to macroeconomic and geopolitical issues.
However, some look like potentially exciting opportunities. One pick I want to explore further is Michelmersh Brick Holdings (LSE: MBH). Should I buy or avoid shares?
Let’s take a closer look.
Safe as houses?
As the name alludes to, the business manufactures and sells bricks, roof tiles, and other construction materials from its own landfill site in Telford.
The housing market has been in a bit of a malaise recently due to economic pressures, so I do understand that there is some short-term risk. However, as a long-term investor, my interest is primarily on the longer-term outlook.
It’s worth noting that Michelmersh shares are up 9% over a 12-month period from 92p at this time last year to current levels of 101p. This rise is pleasing to see, despite the tricky economic picture of recent months.
To buy or not to buy?
Let’s break down the bull and bear case to help me make a decision on the stock.
Starting with the pros, I like the look of Michelmersh as a business, its fundamentals at present, as well as the market it operates in.
From a fundamentals view, the business looks solid, with a healthy balance sheet, and the valuation looks enticing. The shares currently trade on a price-to-earnings ratio of just over nine. In addition to this, a dividend yield of 4.5% is attractive. However, I do understand that dividends are never guaranteed.
Digging into the market, despite current issues weighing on my mind (more on that later) there is potential for growth. A big part of this is the housing imbalance in the UK. As demand is outstripping supply, future projects to fill this gap mean brick makers could be set for a windfall. Furthermore, Michelmersh’s in-house manufacturing could allow it to maximise margins. In turn, this could boost profitability and returns.
Moving to the other side of the coin, high interest rates and rampant inflation have hurt house building, and sales. Naturally this has led to a drop-off in demand for bricks, hurting sales and performance.
My biggest worry is that this turbulence could continue for some time. There’s no guarantee when interest rates and inflation can be curbed. Michelmersh could be in for some testing times ahead. I’ll be watching company updates with interest.
My verdict
Taking everything into account, I reckon Michelmersh is a stock that could definitely help me grow my wealth and holdings. Despite current risks mentioned, there’s exciting growth potential ahead. Plus, with solid fundamentals, and a passive income opportunity on offer, I’m sold.
I’d happily buy some shares the next time I have some investable cash. With the long-term future of the housing market in the UK needing huge attention, Michelmersh could capitalise.
