We then entered a period of double-digit inflation as supply chain congestion and higher energy prices took hold. The Bank of England’s (BoE) response was to increase interest rates which brought on a cost-of-living crisis and dampened mortgage demand. Again, I sat back and watched.

In July 2024, the country elected a new government, which promised to introduce a series of planning reforms that would get the country building again. There was a post-election rally in housebuildng stocks with Persimmon’s share price increasing 17% during the following three months. Since then, it’s fallen around 38%.

What now?

Today (5 September), I still hold my shares. Unfortunately, I’m sitting on a large paper loss. In my defence, I’ve picked up some pretty good dividends along the way. And in my view, successful long-term investing is all about ignoring the stock market’s usual peaks and troughs. However, I can’t help but feel frustrated that the stock — and the sector — appears to be out of favour with investors.

At least I can take some comfort from the fact that all of the FTSE 100’s builders have suffered similarly. It’s not as if I picked the wrong one. Over the past 12 months, all have seen their share prices fall significantly.

Same but different

However, across the Irish Sea, things are more positive. Since September 2024, Cairn Homes (LSE:CRN), Ireland’s largest builder of houses, duplexes and apartment blocks, has seen its stock increase in value by 18%.

And yet the fundamentals of the housing market are very similar to those in the UK. There’s a shortage of properties and young people struggling to save for a deposit. A bit like the cladding scandal here, safety defects have been found in apartment blocks in Dublin. And higher prices are squeezing incomes.

Green shoots

However, Cairn Homes says it’s experiencing “exceptionally strong sales momentum”. This week, when it published its interim results for the six months ended 30 June (H1 25), it announced a 17% increase in its order book to €1.54bn, or 4,092 units.

And driven by a surge in first-time buyers, it’s expecting a much stronger second half to the year. In July, Ireland’s loan approvals were up 12% month-on-month, with 61% being granted to new borrowers. In the UK, net borrowing fell £900m.

In a further boost to demand, the European Central Bank’s main interest rate has been cut from a post-pandemic high of 4% to 2%. By contrast, the BoE’s has fallen from 5.25% to 4%.

Cairn Homes also announced an 8% increase in its interim dividend.

Despite this positive backdrop, the group faces some challenges. Construction cost inflation is affecting its margin. And it has higher borrowings than its UK counterparts.

However, it looks as though the Irish housing market is recovering more quickly than in the UK. On this basis, those wishing to have a housebuilding stock in their portfolio could consider Cairn Homes.

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Also, there are no guarantees in the stock market. What looks like it might rise based on sound evidence today could change based on wider economic factors tomorrow.

Nonetheless, I have a positive view of Cairn Homes (LSE:CRN), and I think it has the potential to rise 25% in the next year. Here’s why, as well as the risks to my outlook.

An overview of the company

The organisation is an Irish homebuilder, particularly prominent in the residential construction market in Dublin.

It was founded in 2014, and is known for a range of different developments, from starter homes to luxury apartments across Ireland.

Amazingly, in 2019, it sold 1,080 residential units and became the largest residential construction company in Ireland for that year.

What’s more, its revenue and gross profit have had a nice upward trend from 2016 to 2023.

However, there was a significant dip in 2020, primarily due to the pandemic.

Promisingly, the future growth of this company looks set to continue, with revenue and earnings estimates by analysts looking healthy for at least the next two years.

Could it rise 25% in a year?

A 25% gain in one year is highly unlikely. However, certain companies are positioned for this kind of growth to occur.

I think Cairn Homes is particularly geared for higher investment returns than normal. The reason why is its shares look deeply undervalued to me.

To arrive at this conclusion, I looked at how the price-to-earnings (P/E) ratio of the firm has decreased recently:

What this means is that the shares are selling at much lower prices than historically.

A couple of years ago, at such a high P/E ratio, I would have stayed away from the investment.

However, at this point, it looks cheap. The shares are trading at a current P/E ratio of around 13.5.

As a value investor, I work on the premise that the price of a company’s shares should eventually rise to the fair value evidenced by the growth of the earnings.

Taking into account the fluctuations in the P/E ratio and the firm’s recent and predicted earnings growth, I estimate a reasonable price for each share to be about £1.70 right now.

It’s currently selling at £1.25, roughly a 25% discount based on my prediction.

No guarantees

Now, although my estimate looks promising, I can’t guarantee I’ll get that return in a year.

There’s a risk the shares stay flat if investors don’t change their sentiment on the investment, especially in such a short time period.

Also, the consensus analyst estimates and my forecast could be off, and something could happen to the business severely depleting the earnings. So, there’s even a risk I lose money on what I initially invest.

That’s why in value investing we don’t call the 25% discount a given profit. Instead, the famous term coined by Warren Buffett‘s teacher is a margin of safety.

Even if things go wrong, my loss shouldn’t be so bad because I bought the investment at a low, undervalued price.

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Cairn Homes

Investing in residential property can be one of the safest plays during uncertain economic times. We all need somewhere to live, right?

Irish housebuilder Cairn Homes (LSE:CRN) is one such business on my radar today. As in the UK, Ireland is suffering from a huge supply and demand imbalance in the housing market that’s supporting prices. Yet more moderate inflationary pressure in the eurozone means the interest rate threat there is much lower.

Latest trading news today underlines how healthy business remains at Cairn at the moment. Chief executive Michael Stanley said that the firm remains on course to “significantly increase” completions in 2023. It has predicted sales of 1,750-1,800 new homes, up from 1,526 last year.

High build cost inflation remains a danger to earnings. However, the firm is still expected to grow profits this year, thanks to its bulky gross margin (this remains robust at around 21%). As a result, the company trades on a forward price-to-earnings (P/E) ratio of just 9.5 times.

It also means Cairn is tipped to keep increasing the annual dividend. So the company carries a mighty 6.6% dividend yield. The firm’s solid balance sheet — which recently allowed it to launch a €40m share buyback programme — means it should be in good shape to meet current dividend forecasts too.

Assura

Buying real estate investment trusts (REITs) can be another great way to make a passive income. In exchange for certain tax advantages these property shares are required to pay at least 90% of annual rental income out in the form of dividends.

Of course that doesn’t guarantee investors will receive big dividends. Falling profits can have a significant impact on the payouts shareholders receive.

However, disappointing dividends isn’t something that holders of Assura (LSE:AGR) shares need to worry about, at least in the near term. As a major operator of primary healthcare properties it can expect rental income to continue streaming in at impressive levels.

Firstly, the business doesn’t have to worry about rents being missed, whatever the economic climate. Medical facilities like GP surgeries are in high demand, regardless of broader conditions. What’s more, the rental payments it receives are essentially guaranteed by the NHS.

Critically, property shares like this can also effectively link the rents they receive to inflation. This is why Assura’s like-for-like rent rolls increased by a healthy 7.2% during the 12 months to March.

Changes to NHS policy may dent profits and dividend growth here later on. But this looks unlikely as the government aims to reduce hospital numbers by investing in primary healthcare.

Assura is rapidly expanding to capitalise on this favourable environment too. Last week, it completed its 100th development.

For the current financial year the company carries a 7.7% dividend yield. I expect it to be a source of large dividends for years to come.

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Green

Greencoat Renewables (LSE:GRP) initially invested only in wind generating assets in Ireland. Now it has a portfolio of renewable energy projects across Europe. These power the equivalent of over 500,000 homes.

The fund’s objective is to provide a dividend that “increases progressively” at the same time as increasing the value of its investment portfolio. The stock is currently yielding 5.7%. Importantly, 59% of the fund’s cash flow is underpinned by inflation-indexed contracts until 2032.

With the world moving towards net zero, the fund is clearly in the right sector. But the wind doesn’t always blow. And the assets in which it invests will need to be replaced at some point. However, I think the fund is well run. And its manager takes a conservative approach to its operations.

Not green

DCC (LSE:DCC) is a Dublin-based company with interests in the energy, healthcare, and technology sectors. In 2022, most of its revenue (69%) and operating profit (73%) was derived from the retail of oil and gas.

Not surprisingly, the company is seeking to move away from its dependency on fossil fuels. This will be expensive. In 2022, DCC spent £668m (more than its operating profit) on buying other companies. By far the biggest acquisition was Almo, an American consumer electronics and lifestyle business.

Despite the pressure to diversify, the company has an impressive track record of increasing its dividend each year. In cash terms, its payout was 43% higher in 2022 than in 2018. Its shares are currently yielding around 4.5%. This is marginally above the FTSE 100 average.

Construction

Cairn Homes (LSE:CRN) is Ireland’s largest housebuilder. Last year, it sold 1,526 properties — an increase of 36% on 2021. Additional volumes, an improvement in the operating margin (from 19.8% to 21.7%), and a 6.5% rise in the average selling price, all contributed to a 76% improvement in operating profit, to €103m.

In respect of its 2022 financial year, the company declared a dividend equivalent to 5.34p a share. This means the stock is presently yielding a healthy 5.9%.

The problems affecting UK builders are well documented. But across the Irish Sea, the economic downturn hasn’t been as severe. In 2023, the economy is expected to be the fastest growing in the European Union. To combat Ireland’s housing crisis, its government is offering incentives to boost the number of new homes being built.

One area of concern I have is the level of the company’s debt. Borrowings increased from €150m at the end of 2021, to €171m a year later. For comparison, the largest UK housebuilders have very little debt, if any.

My view

I’d be happy to include all three stocks in my portfolio. However, my favourite would be Greencoat Renewables.

The company is operating in a growth sector. It’s therefore the most likely to generate a decent second income, without eroding the value of any investment. Because of this, I’m going to put the company on my watch list. I’ll then take another look when I next have some spare cash.

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Raising the roof

A colossal shortage of new homes is sending property prices through the roof (no pun intended!). This isn’t just a British phenomenon either. It’s why I’m considering buying housebuilder Cairn Homes (LSE: CRN).

Irish property prices are rising faster than they are in the UK due to a supply crunch. Latest government data showed the average home price in Ireland rocket 15.3% year-on-year in February. This was also the biggest jump for seven years.

A steady stream of positive market updates from Dublin-based Cairn Homes echo these supreme trading conditions. In March, the penny stock said that revenues leapt 62% year-on-year in 2021, to €424m, while gross margins leapt 350 basis points to 19.8%.

Cairn’s pre-tax profit soared 240% from 2021 levels as a result to €50.2m. And the business is seeking to supercharge build rates to between 5,000 and 5,500 homes by 2024 to capitalise on the fertile trading environment. The firm sold 1,120 homes last year.

A mega-cheap penny stock

I believe the future is extremely bright for Cairn Homes. Yet I don’t believe this is reflected in the company’s current valuation. At 93p per share, the builder trades on a price-to-earnings (P/E) ratio of just 8.5 times for 2022. This is a valuation that reflects the possible impact rising interest rates will have on Cairn’s sales, in my opinion.

One final thing: Cairn Homes carries a large 5.4% dividend yield at today’s prices too.

Good as gold!

News of rampant inflation continues to rattle investor nerves. The stock market sell-offs of recent days illustrate the scale of investor concerns right now. However this is an environment that I think plays into the hands of gold stocks like Centamin (LSE: CEY).

During periods of high inflation, gold prices tend to rise as the true value of paper currencies comes into question. And the current landscape is particularly promising for gold mining stocks too as elevated inflation accompanies low growth (also known as stagflation).

Latest gold investment data from the World Gold Council reveals how strong interest in safe-haven bullion remains. It says that global gold exchange-traded funds (ETFs) enjoyed inflows of 43 tonnes in April. This was the fourth successive month of inflows.

5.2% dividend yields

Buying Centamin shares is more risky than investing in physical gold itself. This is because profits-sapping operational problems can be a common problem for mining stocks.

Still, this is a risk I’d be prepared to take to get hold of Centamin’s big dividend yield. This sits at a mammoth 5.2% for 2022.

At 90.8p per share, Centamin also trades on an undemanding forward P/E ratio of 11.9 times. I think the gold stock’s excellent all-round value makes it, like Cairn Homes, a top penny stock to buy today.

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Cairn recently reported that its revenues rocketed 61% in the six months to June, while its order book leapt to €655m from €214m at the start of 2021. Encouragingly, evidence shows that buyer demand has remained electrifying since then too. Average property prices in Ireland soared 12.4% in the 12 months to September, according to the country’s Central Statistics Office. This was also up from 10.9% in the previous month.

Big margins at Cairn Homes are also helping to drive profits right now (it expects a gross margin of 19% in 2021). However, I am aware that margins could start to recede if supply chain issues mean building material costs keep surging, hitting shareholder returns in the process.

Another housing hero

I think investing in Triple Point Social Housing REIT (LSE: SOHO) could be a good way to insulate myself against the danger posed by Omicron. After all, demand for the accommodation it provides (to people with special needs) remains stable during good times and bad. The business collected 100% of rents even as the Covid-19 crisis savaged the British economy.

Security isn’t the only reason I like Triple Point Social Housing. I also like the steps it’s taking to boost its property portfolio, the company adding a raft of new assets to its books for a shade under £30m last month. Such action will allow it to capitalise on the fast-growing specialised supported housing (SSH) sector to full effect.

Finally, I like Triple Point’s classification as a real estate investment trust (REIT). This ensures it has to pay a minimum of 90% annual profits out by way of shareholder dividends.  I’d buy the business despite the danger of overpaying for acquired assets which fail to deliver the desired rewards.

An electric vehicle penny stock

TI Fluid Systems is a UK share I bought last year to latch onto the electric vehicle revolution. And I’m thinking of investing in European Metals Holdings (LSE: EMH), which operates the massive Cinovec lithium project in Czechia. Most plug-in hybrid and battery-powered cars contain lithium-ion batteries, meaning European Metals can expect sales of its product to soar.

I’m also a fan of this company because it’s located slap bang in the middle of Europe’s carbuilding belt, making it simpler to sell its product to major manufacturers. Pleasingly, sales of low-carbon vehicles are booming in Europe. According to ING Bank, new registrations leapt 41% in the five years to 2020, beating the US and its figure of 28% by a wide margin.

The European Metals share price could suffer if development of Cinovec hits trouble, of course. However, all things considered, I think the reward-to-risk profile of this penny stock is highly attractive.

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Housing hero

Cairn Homes (LSE: CRN) is a great way to play the chronic homes shortage in Ireland, in my opinion. Sure, profits at the business are in danger from strong and sustained cost inflation as supply chain issues persist. But to my mind, the probability that Irish house prices will continue to soar makes this penny stock a brilliant buy. I think low interest rates will continue to turbocharge buyer demand and by extension property values.

Latest financials showed Cairn’s sales soar 61% in the six months to June. Meanwhile its order book leapt from €214m at the start of 2021 to €655m by the midpoint. Pleasingly the business is hiking construction rates to capitalise on this fertile landscape, too. It aims to sell 1,450 home completions in 2022, up from a predicted 1,100 for this year. Cairn Homes trades just below the penny stock limit around 98p per share.

A top electric vehicle stock!

Encouraging operational updates from European Metals Holdings (LSE: EMH) is prompting me to give the penny stock serious consideration. This mining business operates the Cinovec lithium and tin project in north-west Czech Republic. It’s therefore in one of the prime places to capitalise on soaring demand for lithium-ion batteries as European electric vehicle sales grow.

As I say, news coming from European Metals has been extremely bright of late. In October’s most recent update the penny stock upgraded its resource estimate for Cinovec to 7.39m tonnes of lithium carbonate equivalent following fresh drilling work. That’s up from a prior prediction of 7.2m tonnes. European Metals has plenty of potential, then, though problems with the development of Cinovec could significantly hit profits projections and cause the share price to slide. Today European Metals trades at 80p per share.

A penny stock for the online shopping boom

I bought Tritax Big Box REIT and Clipper Logistics last year to make money from the e-commerce explosion during and after the Covid-19 crisis. These UK shares provide logistics and warehousing services to help businesses get their product direct to their customers. I also think DX Group (LSE: DX.) could be a great way to ride this theme.

Okay, DX might be a little fish compared to those other two. But it is expanding rapidly to exploit the fast-growing online shopping market, and has opened new depots in Dewsbury, Luton, Verwood, and Burnley in the last three months alone. I’m confident that the company’s solid cash generation should pave the way for sustained expansion too. DX Group trades at 29p per share, and I think it’s a top buy despite the threat posed by HGV driver shortages to its operations.

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Legislative changes across developed and emerging markets require higher loadings of these metals in car exhaust systems. The escalating climate emergency means that regulations could become even tighter too.

PGM production at Jubilee is soaring (up 23% year-on-year in the first six months of 2021). And the company’s investing heavily in its operations like expansion of the Inyoni PGM facility to boost long-term output.

It’s important to remember that raw materials production is highly complex business. Costs can balloon and output levels can disappoint, dealing a huge blow to profits. Still, in my opinion, this South African mining giant’s risk-to-reward profile is highly attractive.

A model penny stock

The surging number of hobbyists during recent Covid-19 lockdowns makes Hornby (LSE: HRN) an attractive penny stock to buy today. In fact, soaring demand of its miniature railways and model kits from people in lockdown gave the company’s recovery from the travails of previous years a serious boost.

Indeed, Hornby’s latest financial statement last month indicated that “our outstanding order book is very strong and substantially higher than a year ago.” Okay, the company’s rebound might be blown off course by supply chain problems and a weakening of consumer confidence.

However, I find the thumping brand strength of products such as Corgi die-cast miniature cars, Scalextric slot car racing packs and its own-brand railway kits extremely reassuring, a quality that should help it to ride the worst of these problems. I expect them to remain hugely popular with hobbyists for decades to come.

Making money with the housing market

The shortage of new homes entering the market in Britain represents plenty of opportunity for UK share investors. I own stakes in Barratt Developments and Taylor Wimpey. They’ve made me solid returns as supply and demand imbalances have pushed property prices through the roof (no pun intended). But I also have an opportunity to play the favourable Irish residential property market with London-listed stocks. Cairn Homes (LSE: CRN) is one such share I’d buy today.

This Dublin-based business said last month that “demand for new Cairn homes, across all price points from entry level starter homes to trade-up/down, has never been stronger.” Cairn Homes, which is taking steps to build 2,500 new homes a year by 2022 to exploit this trend, saw revenues rocket 61% in the first six months of this year.

While the penny stock’s profits could be hit by soaring building products costs, I’m encouraged by news that house price inflation continues to outstrip the rate at which raw materials are rising in price. I’d happily buy Cairn alongside Hornby and Jubilee Metals in November.

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And I’d be happy to snap up penny stock Cairn Homes (LSE: CRN) as the housing market in Ireland, just like in the UK, is suffering from severe property shortages that are sending newbuild prices through the roof.

Cairn Homes said in July’s most recent update that “demand for new homes has never been stronger and the lack of supply has never been more acute.” This explains why the penny stock’s closed and forward pipeline rose to 1,530 units as of June, up 65% in just four months.

I’m expecting another positive trading statement when half-year results come out on 9 September, given the steady slew of encouraging news on the Irish housing market.

City brokers think Cairn Homes’ annual earnings will double in 2021. This leaves the company trading on a rock-bottom price-to-earnings growth (PEG) ratio of 0.3 at current prices of 95p. This makes it too cheap for me to miss, in my view, despite the threat posed by soaring building materials prices.

The FTSE 100 fashion star

I believe JD Sports Fashion (LSE: JD) could be a top FTSE 100 stock for me to buy before its next financials come out on 14 September.

The retailer’s results have remained mightily impressive recently as the growth of flexible working has turbocharged the already-impressive rise of the athleisure clothing segment. The strength of JD Sports’ online proposition has also helped the Footsie firm’s profits remain solid, despite the closure of its stores during Covid-19 lockdowns.

I’m also encouraged by the FTSE 100 firm’s expansion into foreign territories and, in particular, its push into the US.

Analysts think JD Sports’ earnings will rise by 20% and 17% in the fiscal years to January 2022 and 2023 respectively. But be aware that the UK retail share trades on a high forward P/E ratio of around 24 times. This leaves it in danger of a share price correction if news flow surrounding the company disappoints.

Another great penny stock

I also believe Safestyle UK (LSE: SFE) could be a top UK penny stock to buy before next month. Recent trading at the window and door supplier has been extremely strong. And I expect another excellent market update on 23 September. Safestyle upgraded its profits expectations at its last investor announcement a few weeks ago.

It’s true that supply chain issues could hit Safestyle’s sales in the months ahead. Still, I believe the outlook for this penny stock over the longer term remains robust. The home improvement market remains solid as broader consumer spending steadily improves. And, as I said earlier, the housing market in the UK is extremely bubbly right now.

So Safestyle could continue to benefit from solid spending on pre- and post-sale renovations. Today, this UK share trades at 54p.

The post 2 penny stocks and a FTSE 100 stock to buy for September appeared first on The Motley Fool UK.

Gold star

2020’s Covid-19 outbreak proved that having exposure to gold as insurance against unforeseen catastrophes is a good idea. While stock markets crashed as investor confidence sank, demand for safe-haven assets like precious metals rocketed. Consequently, gold prices soared to record highs and investors in UK gold mining shares watched the value of their stock balloon.

Gold prices have slipped back from those peaks, but I think another charge higher could be around the corner. I expect prolonged US dollar weakness and inflationary fears to keep bullion prices bubbling nicely. Signs of renewed trade hostilities and setbacks in the pandemic battle could also spook people into buying gold.

I’d buy penny stock Serabi Gold (LSE: SRB) to play this theme. Despite the risky nature of metals excavation that can hit profits, I think at 62.5p the company could be too cheap to miss. It trades on a forward price-to-earnings growth (PEG) reading of 0.6.

The plus-size penny stock

I also think N Brown Group (LSE: BWNG) could be one of the best stocks to buy for the next 10 years. This isn’t just because value retail continues to go from strength to strength, as I mentioned again recently. It’s because its brands such as Jacamo and Simply Be give the penny stock a leading position in the fast-growing plus-size clothing market. According to Allied Market Research, this market will be worth $696.7bn by 2027. That compares with $481bn in 2019.

It’s certainly true that retailers like N Brown face a colossal challenge as stock shortages worsen. According to the CBI, stock levels in relation to predicted sales are at their lowest since 1983. The body’s latest survey suggests stock levels will remain low in August as well. Still, at current prices, I think the UK retail share still looks mighty attractive. It trades on a forward price-to-earnings (P/E) ratio of just 7 times at current prices of 50.1p.

Growth + dividends

Cairn Homes (LSE: CRN) is another top penny stock that offers plenty of bang for a investor’s buck. City analysts think annual earnings at the Irish housebuilder will double in 2021. This means the company trades on a PEG 0.2. What’s more, at current prices of 92p, Cairn Homes carries a meaty 3.7% dividend yield, one that beats the 3% FTSE 100 average by a decent margin.

Just like in the UK, Ireland is suffering from an extreme shortage of new properties as homebuyer demand soars. Official data just showed average home prices on the Emerald Isles rise at their fastest pace for two-and-a-half years. And I expect sales to remain strong as interest rates in the country will likely remain at rock-bottom levels for some time. I’d buy Cairn Homes despite the damage an economic downturn could cause to the penny stock’s profits.

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