July was a month of highs and lows. The UK government announced a big lift in restrictions but ‘freedom day’ brought with it an FTSE 100 collapse as the index was down 2.4% on 19 July.
But as we head into August, I see a strong recovery and potential upticks in share prices. Also, with companies poised to publish half-yearly reports, some big jumps in share prices can be expected. Here is the one FTSE 100 stock I would buy in August for long-term returns.
FTSE 100 housing giant
My pick is Rightmove (LSE: RMV), a FTSE 100 staple and UK’s largest property platform. The housing sector has faced the busiest six-month period in history and numbers suggest that it is set to continue.
Rightmove’s platform received its largest traffic as customers turned to the platform for housing information in record numbers. Time on site was up 31% over the year at 15.9bn minutes spent looking at the 1m properties listed in the UK.
There is a huge demand for homes in the UK and supply is not able to keep up with demand. Rightmove saw 140,000 more sales in the first half (H1) of 2021 but 85,000 fewer new listings. The company estimates an overall deficit of 225,000 homes. This huge waitlist is set to stretch into 2022. And the imbalance is higher with four-bedroom homes, suggesting a growing need for larger living spaces.
This is because work-from-home is here to stay. A survey of 600 businesses shows that “63% of business leaders intend to shift towards one to four days of remote working per week.” This makes larger homes more important for working adults.
The roaring demand for homes in the UK is also partly because of grants like the Help to Buy scheme where the government offers equity loans to help new buyers. I think the market is very attractive for first-time buyers. Smaller homes saw the least increase in prices (3.4%). Even though sales was up 26% in H1 2021, supply was down just 1% .
The company’s shares have remained stable despite concerns over the pandemic period with impressive five-year returns of 67.3%. In the last 12 months, the stock is up 18.78% and continues to impress on the short-term charts, growing 19.1% since May 2021.
Though revenue dipped 29% in 2020 to £205.7m (from £289.3m in 2019), Rightmove suggests that this is a result of a 75%-60% discount on invoices between April and September 2020. This shows me that this FTSE 100 company prefers a consumer-centric approach.
Despite this, its cash reserves grew to £96.7m in 2020 from £36.3m in 2019. This could allow for platform updates and more importantly, increased dividend yield, which currently stands at 4.5p per share.
Basic earnings per share in 2020 stood at 12.6p, a 36% decrease from 2019. Also, the demand for new homes is causing a massive 6.7% surge in average prices in the last six months. This is bound to put off many customers, even with governmental aid. Also, economic constraints could be felt as the nation recovers, leading to a drop in requirements.
But, the long-term prospects for Rightmove look great to me. A large 80% market share and the increasing importance of dynamic living spaces makes Rightmove the best choice for me to invest in for long-term returns.
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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.