I’m searching the FTSE 100 for bargain shares that could soar in value next year. Here’s one on my radar today.
Cheap, on paper
Taylor Wimpey‘s (LSE:TW) share price has slumped in recent weeks, reflecting worries over how October’s Budget could impact housing demand. I think this represents an attractive dip-buying opportunity.
City analysts reckon the builder’s earnings will fall 12% this year before rebounding 27% in 2025. This means it offers excellent all-round value at current prices of 141p per share.
Taylor Wimpey’s price-to-earnings growth (PEG) ratio for next year is a long way under the value threshold of 1. It sits at 0.5.
The Footsie firm’s dividend yield meanwhile is an enormous 6.8%.
Risk vs reward
The market’s right to be nervous about the Budget’s impact on house sales. Stamp duty relief for first-time buyers is due to end in March, while the amount paid on second homes has been hiked.
However, there’s also room for optimism under the government’s broader housing strategy. Plans to supercharge build rates — to 300,000 homes each year to 2029 — by loosening planning regulations provides huge opportunities for the likes of Taylor Wimpey.
I believe the long-term outlook for the business remains robust, driven the accommodation needs of the UK’s expanding population.
And Taylor Wimpey’s large land bank of 89,000 plots puts it in good shape to exploit this. To put that in context, that’s roughly the same size of Barratt Redrow‘s bank following the pair’s recent mega merger.
The business has a strong balance sheet it can utilise to boost its land holdings too. It had net cash of £584m on the balance sheet as of June.
Improving conditions
This is why I own Taylor Wimpey in my own portfolio. In fact, I’m considering adding more given the strength of the housing market’s ongoing recovery, which — if it continues — could prompt a sharp re-rating of its shares.
Latest Rightmove house price data last week shot past all expectations. For October, the average home price was £293,999, a fresh all-time high. To put that in context, that tops the £293,507 struck in June 2022 during the post-pandemic market boom.
On the same day, Taylor Wimpey announced a sharp increase in demand for its own homes. Its weekly net private sales rate per outlet was 0.70 in the year to date, up from 0.51 in the same 2023 period. And its cancellation rate dropped 4% year on year to 17%.
Furthermore, Taylor Wimpey’s total order book (excluding joint ventures) was £2.2bn as of 4 November, up £300m year on year.
Set to rise?
It’s important to note that the housebuilding sector isn’t out of the woods just yet. The effects of the Budget on house sales are still unknown. An uncertain outlook for the UK economy also adds danger.
But I’m also hopeful that the housing sector can keep pulling out of its recent lull, fuelled by ongoing interest rate cuts that boost mortgage affordability.
And with Taylor Wimpey shares looking dirt cheap, I think a fresh price rally could be around the corner.
