Would you rate Taylor Wimpey (LSE: TW) as a defensive stock? Seeing the slump in the Taylor Wimpey share price since the Covid-19 pandemic hit, you might say no. And a fall of 10% Wednesday would probably reinforce that opinion.
But I reckon it all depends on your timescale. If you want a hedge against short-term ups and downs, then no, I wouldn’t go for a housebuilder. I think the picture changes, though, if you look to the long term. But first, what’s behind Wednesday’s price drop?
It’s all down to a first-half results release, which revealed a £39.8m pre-tax loss. With the Covid-19 lockdown pretty much halting house sales, Taylor Wimpey’s six-month revenue dropped by 56.4% to £1,733m. I’m not surprised the Taylor Wimpey share price fell in response, but I think that’s a result of short-term thinking.
Taylor Wimpey share price
Were people expecting good results for the period? I certainly wasn’t. Chief executive Pete Redfern said: “Looking ahead, balance sheet strength, a long order book and our high quality and growing landbank gives us confidence in our ability to navigate the challenges and emerge stronger from the pandemic“.
That’s what I think makes Taylor Wimpey defensive with a long-term view, and why I see the Taylor Wimpey share price as cheap now. It’s in an essential market, and is in no financial trouble whatsoever. Net cash actually stood higher, at £497.3m, than at the same time a year previously.
I’ll leave the last words to Redfern, who said “we are confident in the underlying fundamentals of the housing market“.
Long-term defensiveness
I recall a headline in The Onion some years ago that went something like: “World death rate unchanged at 100%“.
If our UK housing shortage is something that won’t be going away for a long time, death is going to be with us for a lot longer. So as we’re destined to need the services of funeral firms some day, why not use them in the meantime to try to build up some retirement cash?
If Dignity (LSE: DTY) is in a long-term defensive business, that’s been far from clear from the firm’s performance in recent years. A series of well-documented problems has led to a share price slump, and the Covid-19 crisis made things worse. So far in 2020, the Dignity share price has lost 50%. And worse, it’s down nearly 90% over the past five years.
Price boost
But interim results released Wednesday gave shareholders cause for cheer, boosting the price by 20%.
The company reported a 9% rise in underlying revenue, with underlying operating profit up 6%. Cash generation was very strong, up 33%. Part of the reason was, sadly, a 23% increase in the number of deaths handled. According to executive chair Clive Whiley, the company doesn’t expect to need any external funding or to furlough any employees.
Reading strong financial figures from a funeral firm always evokes contrasting feelings. But from an investing perspective, just remember that ultimate 100% death rate. Both the Taylor Wimpey share price and the Dignity share price make me want to buy.
