With the State Pension age set to increase to 68 over the next two decades, many individuals seeking early retirement will require a larger nest egg in order to do so. And since the State Pension amounts to just £8,546 per year, investing in the stock market could be a means of generating the capital required in order to enjoy financial freedom in older age.
Since the Taylor Wimpey (LSE: TW) share price has fallen by 13% in the last year, it could now offer good value for money. Alongside another cheap share which released an update on Thursday, it could be worth buying for the long term, in my opinion.
The company in question is food producer Dairy Crest (LSE: DCG). Its third quarter trading update showed its key brands have delivered strong volume and revenue growth. Combined, its four brands generated sales growth of 10%, with revenue up 6% over the first nine months of the year. Its brands have also continued to gain market share, with product innovation helping to maintain their relevance at a time when consumer tastes are shifting at a rapid pace.
With Dairy Crest expected to post a rise in earnings of 5% in the next financial year, it appears to have a bright future. Although there are risks surrounding consumer confidence and the potential impact of Brexit on the company’s supply chain, its valuation suggests it offers a margin of safety. The stock has a P/E ratio of 13, which indicates that it may also offer good value for money, as well as long-term growth potential.
The short-term future for Taylor Wimpey and other UK house-builders continues to be uncertain. Political risk is high at the present time due to Brexit, although it does not seem to be dampening demand for new homes. Recent updates from the company have suggested demand has been robust, which provides yet more evidence that this significantly exceeds the supply of new homes. This situation is likely to continue for many years, with population growth due to be higher than the completion rate of new homes.
Taylor Wimpey may therefore be able to generate growing net profit over a long-term time period. Since it has a strong balance sheet with a net cash position, this may mean it’s able to raise dividends at a fast pace. It already has a yield of over 10%, which suggests it may be a highly appealing income stock.
A P/E ratio of 7.5 also shows that its share price fall may have been overdone. Certainly, the impact of Brexit on all industries in the UK is tough to predict, and there may be unforeseen challenges ahead. But from a long-term investment perspective, the stock’s margin of safety indicates that it may help individuals to generate a nest egg in order to overcome the inadequacies of the State Pension.
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Peter Stephens owns shares of 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.