With tax changes and high house prices, buy-to-let continues to lose its investment appeal. As such, buying shares such as Taylor Wimpey (LSE: TW) could be a better idea. The stock has a low valuation, high yield and may be able to generate continued earnings growth in the long run.
Of course, it’s not the only cheap stock that could generate higher returns than buy-to-let. Reporting on Tuesday was a FTSE 250-listed company that may also be able to offer high total returns in the coming years.
The stock in question is support services specialist G4S (LSE: GFS). Its full-year results painted a mixed picture, with its Secure Solutions business delivering underlying revenue growth of 3%. The segment’s profit margins increased 30 basis points to 6.5%, with commercial discipline, productivity gains and growth in the sale of technology-enabled security contributing to its improved performance.
However, the performance of its Retail Cash Solutions segment was disappointing, experiencing challenging trading conditions. This brought the company’s overall underlying earnings growth versus the previous year to zero. As such, investor sentiment weakened following the results that sent the company’s share price 5% lower.
Looking ahead, G4S is forecast to post a rise in earnings of 12% in the current year. This suggests its overall strategy is working well, having a positive outlook. Despite this, it has a price-to-earnings growth (PEG) ratio of just 1, which suggests it may offer a wide margin of safety. As a result, it could be worth buying for the long term, appearing to offer growth at a reasonable price.
As mentioned, Taylor Wimpey also appears to offer good value for money at the present time. The company has a price-to-earnings (P/E) ratio of just 8.2, which indicates investors are expecting a challenging period for the business. However, with its bottom line forecast to rise 4% in the current year, and the company having reported robust growth in demand for its new homes in recent quarters, it could offer a margin of safety.
Of course, the wider UK housing market may endure a more challenging period. Valuations are high, while an uncertain period for the wider economy may mean demand dries up to some degree.
In such a scenario, Taylor Wimpey could be a better buy than a buy-to-let. It offers greater diversity, less risk, and the potential to benefit from a dividend yield of around 9.7%. The Help to Buy scheme is expected to continue over the medium term, while further government policies may encourage demand to remain robust even if the wider economy experiences a period of difficulty following Brexit.
For investors who are seeking to capitalise on the long-term growth story of the UK property market, housebuilders such as Taylor Wimpey may be a better means of doing so versus a buy-to-let. Greater tax advantages when invested through an ISA, as well as a more favourable risk/reward ratio, could mean now is the right time to buy a slice of the stock for the long run.
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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.