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Berkeley Group and Burberry Group: are the shares cheap enough to buy in May?

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Covid-19 news continues to dominate the headlines with many countries also focusing on potential economic recovery in the second half of the year. Today I’m taking a look at the share prices of London-focused housebuilder Berkeley Group (LSE: BKG) and luxury fashion house Burberry Group (LSE:BRBY) to see how £1,000 invested in each would have fared over the past five years and whether one or both might offer a path to riches in the years to come. 

Both companies are members of the FTSE 100 index. Year-to-date (YTD), the stocks are down about 14% and 39% respectively. Buying stocks during a market correction requires courage. Let’s see if either one may deserve to be in a long-term portfolio.

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Reading the numbers

Under each company name below, you can see how the price has changed over the past five years and what this means in terms of the compound annual growth rate (CAGR). Then I’ve shown how £1,000 would have fared over five years.

Past share prices are for early May 2015. Current ones are closing prices on 6 May. I haven’t factored-in any brokerage commissions or taxes.

Please note that both FTSE 100 firms pay regular dividends. The calculation below doesn’t take into consideration the dividends or reinvesting that income.

Berkeley Group

The share price has increased from 2,737p to 4,198p, although on 2 January 2020, BKG shares were around 4,948p. It means CAGR of 8.93%, so £1,000 would have increased to about £1,534.

The current dividend yield stands at 2.8% and the shares are expected to go ex-dividend in August. Unlike a large number of FTSE companies, including its homebuilding peers, Berkeley Group has maintained its dividend.

It has a robust balance sheet with over £1bn in net cash. It is trading at 10.5 times current earnings, although this rises to 11.7 times forecast earnings.

I would not necessarily call the BKG share price a bargain yet, especially given the uncertainty due to the economic effects of the pandemic.

Although I am relatively optimistic on the housebuilders after 2021, there is clearly a bumpy road ahead now. But I would consider buying the dips.

Burberry Group

The share price has fallen from 1,780p to 1,335p, but on 2 January, BRBY shares were around 2,201p. That’s a CAGR of -5.59% and means £1,000 would have decreased to £750.

Burberry shares are around multi-year lows. So does the current price mean value?

Even before the coronavirus outbreak, the group had a choppy several years, swinging in and out of favour with investors. And the luxury goods leader was one of the FTSE 100 companies to be adversely affected by the pandemic as demand fell in mainland China and Hong Kong as early as January.

The Asia-Pacific region accounts for over 40% of Burberry’s revenue. However, a mid-March press release from the group highlighted that the adverse effect of the Covid-19 pandemic on the business has now become global.

On a more positive note, passive income seekers can still rely on the British heritage brand. Its current dividend yield stands at 3.2% and the shares are expected to go ex-dividend in late June.

Would I buy now? No. In case of further global economic contraction, consumer incomes and demand for luxury goods will likely fall. I would like to revisit the outlook for the stock on 22 May when it releases preliminary results for FY 2020, the year that ended on 28 March, as that will include a pandemic-affected period.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.

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