The Bank of England’s governor Mark Carney himself noted that house prices could fall by as much as 30% in the event of a ‘disorderly’ departure.

However, post-Brexit jitters in the UK housing market appears to be fading.

With UK employment levels at record levels, highly attractive mortgage rates ever-present, and ongoing Help to Buy schemes further amplifying demand, the outlook looks somewhat optimistic.

In fact, while it remains to be seen how the UK’s eventual European exit will unfold, I would argue that now is the time to back British housebuilding company Persimmon (LSE: PSN).

Persimmon recovers from overnight Brexit blues

In order to set the scene, it is important to remember that in the wake of the Brexit result being announced, shares in Persimmon dropped in excess of 35% in just a few days. Based on the price at the time of writing -1,950p – the British housebuilder has since seen its shares increase by almost 50%.

With momentum now clearly in Persimmon’s favour, I strongly believe that the company’s all-time high of 2,880p is now firmly within sight.

But why?

First-time buyers are crucial

Well, first and foremost, first-time buyers in the UK currently have access to good mortgage availability. Recent Bank of England data showed that net mortgage lending grew to £4.3 billion in April, up from the somewhat sluggish £3.8 billion average seen in the prior six months.

First-time buyers are further incentivised to get on the property ladder while Bank of England rates are still at sub-1% levels.

This is especially relevant to Persimmon, not least because more than half of the private homes it sold in the first six months of 2019 were attributable to this particular demographic of the housing market.

Foundations in place to deal with a potential drop in demand

On the other hand, it is also important to recognise that the Help to Buy scheme will cease to exist in 2023 – something that Persimmon’s current business model has such a strong reliance on.

As such, this is something that investors need to keep an eye on, especially with regards to how the housebuilder plans to deal with a potential decrease in demand.

However, Persimmon has a balance sheet that looks to be in a much healthier state than it was post-2008. Not only is the company in possession of good net cashflow levels, but debt is on the decline.

For the icing on the cake, I must point you towards the highly juicy 12.16% dividend yield that Persimmon recently paid. While I appreciate that it remains to be seen how much longer the company can facilitate such a lucrative offering – especially when one considers the ever-present uncertainties of Brexit – I for one see no reason for concern, at least in the short term.

All in all, I believe that at its current price, investors can still back Persimmon at a highly attractive discount.

The post Why I back this FTSE 100 stock to help you benefit from strong demand for UK housing appeared first on The Motley Fool UK.

More reading

• As stock markets tank, this FTSE 100 share looks cheap to me!
• What on earth’s going on with the Persimmon share price?
• Homebuilders down 30%! Is the UK stock market heading for a 2008-style crash?
• With the stock market down, here are 2 potential ISA bargains to consider right now
• Stock market correction: a once-in-a-decade opportunity to get rich?

Neither Kane nor The Motley Fool UK have a 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.

With major high street bookmaker William Hill (LSE:WMH) reporting a loss of £722 million last year, the FOBT reduction has been highly detrimental for betting shops.

Outside of the adverse FOBT outcome, it was also announced in late 2018 that the UK Treasury would be hiking the tax rate on revenues deriving from the online sector. Rising from 15% to 21%, the tax hike will come into force in October.

At the time of writing, William Hill shares are priced at 299p, representing a mouthwatering 12-month decline of 46%. Fellow counterpart GVC Holdings (LSE:GVC) – which is behind rival bookmaker Ladbrokes, as well as a number of online casino brands – has seen its share price drop by 42% during the same period.

So, with that being said, why on earth do I think that these FTSE 250 stocks are heavily undervalued?

The remote gambling market is booming

It is important to note that both William Hill and GVC Holdings have an ever-growing presence in gambling markets outside of their core UK high street portfolio of shops. This includes the remote gaming market, which covers bets placed online or via a mobile device.

With the online segment of the industry accustomed to £5 billion worth of bets in the UK alone last year, this is a marketplace that operators will look to focus on in the coming years. Furthermore, the remote space is expected to grow by an additional 40% by 2022, so an estimated £49 billion industry lies in waiting.

As the remote sector demands significantly lower overheads in comparison to bulky high street betting shops, this will allow both William Hill and GVC Holdings to utilise their resources in higher-growth markets.

Significant opportunities for international expansion

As both William Hill and GVC Holdings already possess a solid online framework that currently spans continental Europe and Australia, they are in prime position to target new foreign markets with ease. For example, with policymakers in India and Russia currently building an online gambling regulatory framework of their own, these should prove to be key marketplaces for UK gambling companies.

However, an even more lucrative marketplace is slowly but surely opening its doors to the online betting space – the US. Apart from four states, sports betting in the US has been prohibited since the mid-1990s. That was until last year, where the Supreme Court ruled that the ban was unconstitutional.

When one considers than the US sports betting black market is estimated to be worth $150 billion annually, this could soon be one of the largest regulated gambling markets in the world.

While both companies already have a presence in the US, it is William Hill in particular that has acquired a noteworthy market share. For example, the company currently operates more than half of all sports betting outlets in Nevada.

Ultimately, while I appreciate that the future success of both William Hill and GVC Holdings will primarily be based on transnational expansion and a diversification of gambling markets, at current prices I would argue that the stocks offer tremendous value.

The post Are these FTSE 250 stocks heavily undervalued? appeared first on The Motley Fool UK.

More reading

• Why is everyone selling BP shares?
• Is this market correction a once-in-a-decade chance to buy ultra-high-yield income stocks?
• Down 25% in a month! Are these the 3 best stocks to buy in today’s correction… or the worst?
• This FTSE small-cap stock can surge 105%, says one broker
• £10,000 invested in ultra-high yield Legal & General shares on 5 April last year is now worth…

Kane Pepi does not own shares in any company mentioned in this article. The Motley Fool UK has recommended GVC Holdings. 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.

This, among the other reasons I have outlined in this piece, is why I think Unilever is a key stock to hold during the uncertain waves of the Brexit saga.

Brexit? So far, so good

In order to set the scene, I thought it would be relevant to assess the performance of Unilever shares since the Brexit referendum was announced on June 23rd 2016. At the time of writing, Unilever shares are trading at 5,062p.

This represents a 58.8% increase from the 3,186p the shares were traded at when the result of the Brexit vote was announced. During the same timeframe, the FTSE 100 index has grown by 20%.

For me, I see no reason at all why this disparity in growth will slow down any time soon. One of the key reasons for this is the continued weakness of the Pound Sterling. Unilever has benefited greatly from the demise of GBP, not least because much of its revenues and assets derive from the foreign markets.

This has been fundamental in two key areas. Firstly, Q1 2019 results outpaced expectations with a 3.1% growth in revenues. Secondly, and perhaps most importantly, Unilever is still on track to meet its 20% operating margin target, which it expects to meet before the close of 2020.

A master craftsman in diversification

While some analysts are put off by the organisation’s somewhat complex and overbearing approach to diversification, I for one think that Unilever is a master craftsman when it comes to its high quality and dependable acquisitions. This was further highlighted in its relatively recent purchases of Dollar Shave Club and Quala, who have both since performed remarkably well for the conglomerate.

However, an even more exciting addition to the Unilever portfolio could be that of Drunk Elephant. A potential $1 billion takeover of the US skincare firm would allow Unilever to flex its free cash flows to take the company to new heights.

Slower growth in developed markets should not derail long-term growth

As has been the case for some time now, Q1 2019 results presented further clarity that sales in developed markets are still somewhat stagnant.

Fierce pricing competition across Europe in particular resulted in a mere 0.3% gain for the quarter. However, this was clearly offset by the company’s growth in the emerging markets, where it saw a 5% increase in sales.

With the emerging markets now representing 58% of Unilever’s revenues, it is likely that the organisation will continue to spear-head its focus on these key regions.

Once again, with the uncertain woes of Brexit keeping GBP at record lows, this only amplifies the competitive of Unilever in the foreign markets.

The bottom line?

All in all, whether it’s an ever-growing product line that is arguably robust against the uncertainties of Brexit, a weakening pound that is further amplifying its strong-hold in the emerging markets, or extremely healthy operating margins, I think that the prospects for Unilever as a long-term holding look too good to turn down.

The post Why I think Unilever shares can beat Brexit uncertainty appeared first on The Motley Fool UK.

More reading

• Value investors: Unilever shares are down 7% in a day!
• Could getting out of the food business help the Unilever share price?
• Is this the best time to buy dividend shares since Covid-19?
• Are we staring at a once-in-a-decade chance to buy this beaten-down UK growth stock?
• How to shelter a SIPP from a nasty stock market crash

Kane does not have a position in any company mentioned in this article. The Motley Fool UK owns shares of and has recommended Unilever. 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.

On the one hand, proponents of the company will argue that the tobacco giant has extremely strong free cash flows, which allows British American Tobacco to pay investors a juicy dividend of 7%.

The same bulls will also point to the fact that the company is experiencing notable growth in its alternative product categories – e-cigarettes and heat-not-burn – and is still on track to meet full-year expectations of 3-5% growth.

However, this just doesn’t get away from the reality that British American Tobacco’s core product line – combustible cigarettes – is an industry in heavy decline.

US cigarette sales have declined for 18 straight months

Recent data from global research firm Nielsen showed that cigarette sales in the US were down 11.2% in May, representing a month-on-month decline for 18 consecutive months. This is highly fundamental for British American Tobacco, not least because the firm derives approximately 40% of its global revenues in the US market alone.

In order to counter the threats of a declining cigarette market, British American Tobacco is looking to spear-head its diversification strategy into its new category products, subsequently setting a £5 billion revenue target by 2023. Although the tobacco firm expects to see annual growth of 30% to 50% in its vaping and heated tobacco segments, its current foot-hold is significantly inferior to its core combustible product range.

However, the vaping sector specifically is still in its infancy, meaning uncertainties still exist as to the type of regulatory framework policy makers will eventually install. 

Regulatory uncertainties on menthol cigarettes

Other threats to the tobacco industry further supports my thinking that investors are losing faith in British American Tobacco’s ability to turn things around. For example, fears of a potential US-wide ban on menthol cigarettes still lies in waiting.

This would leave British American Tobacco heavily exposed should the Food and Drug Association proceed with the restrictions, as menthol cigarette sales account for 25% of the company’s earnings. These woes are further amplified with the European Union’s ban on menthol sales coming into full force in May 2020.

The bottom line?

Those still keeping faith in the long-term prospects of British American Tobacco will likely argue that at its current price at the time of writing of 2,797p, the shares are heavily undervalued. However, it remains to be seen how CEO Jack Bowles will turn the company’s fortunes around. Investors are staring at a market capitalisation that needs to double to get back to the 5,579p all-time high its shares reached just over two years ago.

While I take on board the diversification strategy British American Tobacco is taking with its new category products – which will be fully supported by its significant free cash flows – exposure in this segment is still minute.

My overarching concern is that the company’s core cigarette business is under immediate threat on a number of fronts. Whether it’s 18 straight months of declining US cigarette sales, or a potential US ban on menthol products, I think that it might finally be time to let British American Tobacco shares go.

The post Why I’ve finally lost faith in British American Tobacco shares appeared first on The Motley Fool UK.

More reading

• £9,000 in savings? Here’s how to try and turn that into a £193 monthly second income
• A 6.3% forecast yield! 1 bargain-basement FTSE passive income gem to buy today?  
• Want to turn your ISA into a passive income machine? These 3 steps help
• What I look for when searching for shares to buy
• £20,000 in an ISA today can earn a second income by the summer!

Kane Pepi has no position in any of the shares mentioned. 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.