Things had been going pretty well since the financial crisis for residential housebuilder Taylor Wimpey (LSE: TW) with strong earnings growth each year translating into healthy share price appreciation, right up until the EU referendum last June. But the UK’s shock decision to leave the EU brought on a bout of panic selling that left the company’s shares sinking 43% within hours of the result.
However, it wasn’t long before bargain hunters stepped in to scoop up the shares that were now changing hands at close to two-year lows. But were these brave contrarians right to go against the herd and buy the FTSE 100 housebuilder with so much uncertainty still around?
According to the latest trading update from the UK-focused developer, consumer confidence has proven to be robust as visitor numbers and orders have remained stable, supported by good mortgage availability at attractive rates. The forward order book looks pretty healthy too at £2.3bn, with 23% of 2017 completions already sold.
Taylor Wimpey’s share price still hasn’t fully recovered from the Brexit sell-off, and the shares remain cheap at just 10 times earnings for 2017. But my sights are on the extra-generous dividend, which is forecast at 11.1p per share for the year just ended, giving an irresistible yield of 7.2%, covered 1.6 times by earnings.
No Brexit impact
London-listed payment processing giant Worldpay (LSE: WPG) hasn’t been trading on the stock market for very long, but it’s already starting to live up to its premium valuation. Since its October 2015 IPO, the group has reported a £336m increase in revenue and swung from a pre-tax loss of £47.1m to a profit of £19.1m in the space of just one year.
The company derives almost half its income from the US and doesn’t expect to see any material impact from Brexit. Worldpay plans to boost growth through offering cash advances to some of its small business customers, and expand its services to enable companies to analyse the transactions of its customers to help prevent fraud.
Full-year results for 2016 aren’t expected until March, but analysts are expecting the firm to report a very healthy 42% rise in earnings, with a further 13% improvement pencilled-in for 2017. With the P/E rating falling to 21 this year, I believe Worldpay currently offers long-term growth at a very reasonable price.
Finally, the third blue-chip firm with a price tag of under £3 that I believe deserves further attention is FTSE 100 newcomer ConvaTec (LSE: CTEC). The company walked straight into the FTSE 100 last October in the largest IPO of 2016, when it was valued at £4.4bn. The medical products and technologies firm focuses on therapies for the management of chronic conditions, including products used for advanced chronic and acute wound care, ostomy care, continence and critical care and infusion devices used in the treatment of diabetes and other conditions.
I can see long-term growth coming from ageing populations and the increased prevalence of the chronic conditions the company’s products help to manage. The City is also upbeat about the company’s prospects, with analysts expecting ConvaTec to reach almost £1.4bn in revenues, and double its underlying profits to £289m by the end of the year. The shares look attractive at 16 times earnings, lower than that of rival Smith & Nephew.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Worldpay. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.