As a holder of Barratt Developments and Taylor Wimpey stock, you can imagine my delight when rampant post-election buying on Friday saw their share prices balloon by double-digit percentages. They’ve continued to rise in start-of-week trading, too, and I’m confident that they, like other FTSE 100 homebuilders The Berkeley Group and Persimmon, can continue their ascent in the months ahead.
House prices to improve
Market makers had feared what a Jeremy Corbyn premiership would mean for such stocks, and so breathed a sigh of relief following news of the emphatic Conservative win.
Gone was the spectre of more Brexit uncertainty, the stage now set for Prime Minister Johnson to enact his plan of plucking the UK from the European Union on 31 January instead of facilitating a second referendum. Fears over a disruptive reshaping of the domestic economy under a socialist Labour government vanished. The housebuilders also followed the surge in the pound, of course, which burst through $1.33 and is currently now trading at its loftiest since mid-2018.
The more solid outlook for the UK economy, which has struggled amid the huge pressure of Brexit uncertainty, means that many now tip home prices to pick up in the new year. Indeed, Rightmove says that it now expects average property prices on these shores to rise 2% in 2020, revving up from a projected 0.8% for the outgoing year.
Brexit fears recede?
It’s important to remember that the Brexit issue has only become clearer until the end of January. The complexity of trade talks with the European Union, and the the ample capacity that exists for disagreements and delays, means that Downing Street’s pledge to get a deal hammered out by the end of 2020 look less than remote. Let’s not forget that it took more than half a decade for the continental trade block to sign off a trade deal with Canada in the 2010s.
But as I explained recently, with Johnson’s party commanding a colossal 365 seats in the Commons, Number 10 now has a lot more wiggle room – both in terms of the content of the deal and the timing of the ribbon being tied – to get it finalised. Johnson no longer has to dance to the tune of those supporting a hard Brexit. Thus the chances of the UK either embarking on an economically destructive Brexit, or falling through the no-deal trapdoor next 31 December, have receded greatly. At least, in this Fool’s opinion.
And I am licking my lips with anticipation over what this could mean for the homebuilders and their share prices in 2020. All four of those FTSE 100 firms were already up in the calendar year until Thursday’s election. So just how high could they go with the Brexit fog having thinned?
And in the case of Barratt, Persimmon, and Taylor Wimpey, these firms’ rock-bottom share prices certainly give plenty of scope for more rises. Each trades on a forward price-to-earnings ratio below the bargain-basement forward P/E ratio of 10 times. And they carry corresponding dividend yields of around 6%, 8.5%, and 9% respectively, too. There’s plenty of reason to buy into these brilliant blue chips, in my opinion.
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Royston Wild owns shares of Barratt Developments and 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