The volatility which has enveloped share markets of late has washed out some pretty good-looking shares. Just as a high tide lifts all boats, the exact opposite is also happens when market makers head for the exits, en masse.
And this leaves plenty of companies trading at dirt-cheap levels. Take Bovis Homes Group (LSE: BVS), for example. The FTSE 250’s drop to six-week lows has prompted further weakness in the housebuilder’s share price too, and this leaves it trading on a forward P/E ratio of just 9.5 times.
But Bovis doesn’t just offer top value from an earnings perspective. With dividends expected to keep rising along with profits over the next couple of years, the company also offers blockbusting yields of 10% and 10.2% for 2019 and 2020.
So what’s the catch, you might ask? Well, theoretically, the prospect of a an economically-damaging no-deal Brexit hangs heavy over the likes of Bovis, a situation that could hamper housebuyer activity in the near term and beyond.
Such fears were fanned on Thursday following fresh data from the Royal Institution of Chartered Surveyors (RICS) which showed both buyer and seller numbers shrank in September. The survey also showed the number of new constructions last month dropped to the lowest number since around the time of the referendum in June 2016.
It’s obvious that Brexit is wreaking havoc on the broader housing market, though I would argue this is not as much of a problem for the newbuild specialists. Put simply, there aren’t enough new homes to go around to support the growing numbers of first-time buyers, people who still need somewhere to live whatever the broader economic climate.
This is why Bovis for one continues to witness solid revenues and profits progress, the firm seeing the top and bottom lines grow 9% and 20%, respectively, in the first half of 2019. And it looks as if the same factors that are driving homebuyer demand — namely, confused government housebuilding policy, low Bank of England interest rates, and the Help to Buy purchase incentive scheme — are here to stay for much longer.
Another beautiful bargain?
So Bovis is a bona fide bargain and a great buy today, in my opinion. But can the same be said for Dunelm Group (LSE: DNLM), another FTSE 250 dividend share trading on low valuations?
At current prices, the homewares retailer carries a forward P/E multiple of 14.2 times and sports a jumbo dividend yield of 4.1% too. However, I believe this particular share’s cheap price is a reflection of its high risk profile.
Dunelm Group’s shares sunk 10% on Thursday to eight-month lows on the release of spooky trading numbers. During the 13 weeks to 28 September, like-for-like sales rose 6.4%, although this was around half the rate of growth City analysts had been expecting.
Business has been troubled more recently, Dunelm advising of “mixed” trading in September due, in part, to “a softer homewares market.” But signs of growing sales stress isn’t the only reason why investors have headed for the exits. The retailer also disclosed it expects margins to come under pressure later in the financial year (to June 2020) as currency headwinds likely increase.
The threat created by the botched Brexit process is far more dangerous for Dunelm than for Bovis, in my opinion. And this is why I’m happy to avoid it despite its cheap share price.
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…
Royston Wild 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.