Next (LSE: NXT) is a blue-chip whose price ascent since the start of 2019 I find somewhat hard to fathom; it’s up 37% since the bells rang in New Year’s Day.
The obvious drivers in the retailer’s revival have been frantic dip buying following the shocking falls of 2018’s second half, a period in which its market value slumped by more than a third, mixed with Next’s low valuation (it still deals on a forward P/E multiple of 12.2 times despite this year’s gains).
Investors have been minded to pile back in on a roughly-mixed set of retail sales data which have prompted some to consider that “things aren’t as bad as all that,” and that the FTSE 100 firm’s cheap rating bakes in the worst case scenario.
While it’s simple to recognise these drivers, it’s much harder to understand them. Sure, some health checks on the UK retail sector have come in better than expected, but largely speaking, they remain quite concerning as per the latest Confederation of British Industry study released in recent days. This showed retail sales slumping at their steepest rate for 17 months in March.
With Brexit casting a dark pall over the high street and Next also battling a backcloth of increased competition, the profits outlook for the business remains pretty scary and is likely to stay that way beyond 2019. I wouldn’t be surprised to see its share price ascent unravel in the coming weeks and months, and so given its recent strength, I would sell if I owned the shares.
A better buy?
So should investors also consider selling out of Taylor Wimpey (LSE: TW) as well? The housebuilder has gained 31% in value so far in 2019, also putting it on the Footsie’s Top Three podium for the first quarter’s biggest risers.
I would consider it to be on much safer footing to continue rising than Next and in a great position to keep rising too, as latest data from UK Finance showed. Despite the economic uncertainty that Brexit is prolonging, this isn’t causing homebuyer demand to fall off a cliff as many had expected and mortgage approvals for home purchase rose 1.5% in February to 33,621.
It’s simple: the support of the Help To Buy programme and attractive lending conditions are combining to help property sales stay on the boil, and I see little reason for new-build sales in particular to grind to a halt given the country’s formidable homes shortfall that’ll take many, many years to soothe.
Despite its first-quarter gains, Taylor Wimpey still carries a rock-bottom rating, a forward P/E ratio of 8.6 times. This provides a solid platform for the builder’s share price to keep swelling, in my opinion, and particularly — as I fully expect — the firm continues to pepper the market with terrific trading updates. In February’s finals it advised “a very positive start to 2019” and “continued strong demand for our homes.”
So I consider Taylor Wimpey to be an exceptional buy right now. And the clincher is the company’s gigantic 10% forward dividend yield.
- My simple 3-step plan to build up a £1 million ISA account
- Buy-to-let returns are plunging. Here's where I'd invest my money instead
- Do this one thing now and you can say goodbye to State Pension worries
- Thinking of opening a cash ISA? Here's why I think you could be set to make a huge mistake
- Sirius Minerals shares are down 30% in six months. Is it time to buy?
- Top shares for 2019
Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2019