I’m not going to suggest that investing in the home-builders isn’t laden with risk. As the scheduled Brexit date in March draws ever closer, fears surrounding a possible collapse in home values — and with it the profitability of many of the country’s construction stocks — continue to grow.
Persimmon (LSE: PSN) for one saw its share price haemorrhage a shocking 30% of its value in 2018. And it’s possible that additional falls could transpire in the weeks ahead, particularly if the UK exits the European Union without a deal. Bank of England head Mark Carney famously asserted late last year that property prices could tumble by more than a third should the country suffer a so-called disorderly Brexit.
But I’m a glass-half-full man when it comes to assessing the house-builders. It’s why I continue to hold those other FTSE 100 home creators Taylor Wimpey and Barratt Developments. And I see plenty of scope for Persimmon’s share price, along with those stocks that I own, to spring back into life in 2019.
Look, I’m not underestimating the economic chaos that a no-deal Brexit would bring. And if recent government actions, from chartering shipping companies to protect against food shortages, to preparing public notices to help citizens prepare for a painful exit, are any guide then Westminster appears to be dragging us closer to the abyss.
I may be wrong here but I believe that a no-deal withdrawal remains most unlikely given the political and economic suicide that it would cause for the Conservatives. It’s a possibility, sure, but one that’s currently baked into the home-builders’s dirt-cheap valuations at the moment — for Persimmon this sits at just 7 times.
It’s likely that any version of Brexit will hit the domestic economy, but should the government avoid the worst-case scenario and achieve a more favourable evacuation — say, by creating a Norway-style relationship with the European Union — then it’s quite possible that Persimmon could see its share price surge.
What’s more, the suggestion of remaining in the continental trading block via a People’s Vote also continues to gain momentum in the corridors of power as well as with the public at large, at least if recent polling is to be believed. A decision to Remain would undoubtedly provide domestic-focussed companies like Persimmon with a huge dose of rocket fuel.
Like any investment decision, deciding whether to invest in the house-builders is a question of risk versus reward. And the heavy share price reversals of last year more than factor in the possibility of slumping earnings, in my opinion, something which City analysts are still not forecasting (for Persimmon a 2% profits rise for 2019 is estimated).
What makes these companies really irresistible picks right now, and which could really prompt a flurry of buying activity in the months ahead, is the size of their dividend yields. Persimmon for one is expected to pay a 235p per share reward in 2019, a figure which produces a mammoth 12%. And it’s quite possible that the company and its peers should remain a lucrative stock to hold over the long term given the scale of the country’s colossal homes shortage. I remain convinced that this Footsie firm could still provide stunning shareholder rewards in the years ahead.
Royston Wild owns shares of Barratt Developments and Taylor Wimpey. 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.