The Motley Fool

One housing-linked stock I’m watching ahead of Brexit

The deadline for Brexit is now only two months away. Many investors are rightfully nervous. The prospect of a no-deal Brexit could hurl the UK into a period of economic uncertainty such as it has not experienced in this century. And a Reuters poll of housing experts conducted in August suggested that Britain’s housing market would take a hit in the event of a no-deal Brexit.

Housing prices are expected to enjoy an uptick if a deal is worked out between the two sides that avoids this most undesirable outcome. Foreign demand would be hard hit in the event of a no-deal Brexit. Fortunately, factors like a supply shortage and historically low mortgage rates are serving as a buffer for the broader market.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Stocks linked to housing may look like a dicey proposition to many investors ahead of Brexit. OneSavings Bank (LSE: OSB) is a mortgage-focused specialist lending and retail savings group and its shares have dropped 19.6% year-on-year. The stock managed to reach 52-week highs in mid-April, but has since succumbed to broader headwinds. Is there any reason for optimism ahead of October 31?

Mortgage lenders have faced headwinds due to an intense price war that has emerged in 2019. Increased competition and new regulation have seen banks commit to riskier methods. This includes lending out a greater amount of mortgage deals with loan-to-value (LTV) ratios up to 95%.

OSB had managed to avoid the worst impacts of the price war due to its specialised lending business, but its net interest margin (NIM) dropped to 2.78% in the first six months of 2019. This is compared to 3.01% at the same time in 2018. It has said that the trend in NIM had “largely run its course” and has bumped up its full-year forecasts for loan growth. OSB’s underlying profit before taxes rose 6% year-on-year to £96.9m in H1 2019 and underlying basic earnings per share increased 5% to 29p.

The bank was explicit in its warnings about Brexit in its first-half earnings report. OSB said that the broader housing market was “subdued” by Brexit concerns and anxiety over the state of the global economy. However, it reiterated its confidence that its underwriting business would be able to weather a substantial increase in market risk.

Why I’m high on OSB right now

The summer sell-off at OSB appears overdone to me, even after its post-earnings share bump. The shares still boast a favourable price-to-earnings ratio of 6.1. OSB stock spent the first half of August in technically oversold territory, but it has rebounded after its earnings report. Income investors can also bank its solid 4.4% dividend yield.

Brexit is an ever-present concern, but OSB is better prepared than most in its sector to wade through the potential storm. Its stock has fallen off sharply since the spring but is well-positioned to rebound on the back of improved forecasts in the back half of 2019. I’m looking to buy-low in the late summer.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Ambrose 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.