When the stock market crash happened last year, almost all UK shares saw a sharp drop in price. In hindsight it seems that it was only a matter of time before the stock markets would start rising again. But it certainly did not seem like that then. The pandemic was spreading and there were no vaccines in sight.
My two contrarian picks
But it was exactly that time we had to think beyond our worst fears. Which is what I tried to do when writing about two contrarian stocks for that time. The first was the FTSE 100 real estate company Persimmon (LSE: PSN). Since the worst of the crash in late March 2020, the stock has almost doubled. It is now almost back to pre-pandemic highs.
The other stock was the FTSE 100 oil company BP (LSE: BP), which has bounced back less since the stock market crash. Its increase is around 34%, which is less than for many other UK shares. I reckon its full recovery story is yet to play out.
Which is a better stock to buy now?
In fact, this may well be BP’s year as a growth stock. Oil demand is only just picking up. Travel is still limited and international travel is even more so. As the economy kicks into gear, however, oil prices will rise further. BP’s first quarter numbers were strong because of the comeback in oil. The rest of the year can be even better.
On the other hand, Persimmon could see a more mixed future. Last year turned out to be surprisingly good for property markets, buoyed as they were by supportive policies. This is also evident in the company’s recent positive update. With a strong order book, it is almost guaranteed a good rest of the year. As the economy picks up now, property demand could continue to be strong.
However, we need to bear in mind that the stamp duty holiday, which encouraged buying and selling of houses over the past year, is in the process of getting withdrawn. I think the future of real estate will depend on the net effect of these forces at work. Going by the sharp run up in property prices in the recent months, however, I think it is reasonable to think that some softening will happen.
Despite this, Persimmon has one advantage over BP. And that is its dividend yield at a huge 7.9%. BP’s is still at 5.8%.
Which one would I buy?
A choice between buying one of them depends on my goal from the investment. If I am looking only for a dividend stock, Persimmon looks like the better bet for now.
At the same time, I think BP could increase its dividends more over time as its results improve. Besides this, there is also a big likelihood of its share price will rise fast from here. Even now, it is not entirely back to pre-pandemic levels. On the other hand Persimmon’s share price is near all-time highs.
So, I think BP is a better growth and dividend stock right now. But Persimmon’s dividends cannot be ignored either.
