As I write this article, the sun is pouring through the window, and the blossom is growing in the trees. Spring is my favourite time of year. It’s the traditional time for people to think about buying a new house.
It reminds me of the spring of 2007, when I bought my first house. When I think about that time, the country was buzzing. The property market, and house prices, were rising higher and higher.
Share prices have recovered strongly
And then there was the Credit Crunch. The effect on the housing market (not to say, the whole economy) was devastating.
The shares of housebuilders such as Barratt Developments (LSE: BDEV), Persimmon (LSE: PSN) and Taylor Wimpey (LSE: TW) took a pummelling.
At one point during the dark days of the Great Recession the share price of Barratt fell to below 50p. It shows the extent of the company’s recovery that it has now reached 558p. There has been no better contrarian play in recent years.
But surely now the housebuilders’ shares have climbed so high, it is time to take profits? The price of the stock must have peaked? Let’s look at the numbers.
Take Barratt Developments first. It is on a 2015 P/E ratio of 13.05, falling to 11.10 in 2016. The dividend yield is 4.39%, rising to 5.29%.
The fundamentals are similar, and in fact slightly better, for Persimmon, which is on a P/E ratio of 11.91 this year, falling to 10.34 next year, with a dividend yield of 5.41%, rising to 5.69%.
Taylor Wimpey also looks cheap: it has a 2015 P/E ratio of 11.24, falling to 9.88 in 2016, with a dividend yield of 5.71%, increasing to 6.48%.
But they could rise further
All three of these companies are still cheap, and I don’t think that the trend of rising profits has yet ended. However, I think these firms have transitioned from being contrarian plays to being momentum investments. It is also interesting to note that, if consensus estimates are correct, these property companies will be generating a tonne of cash and will be paying substantial dividends. So they are now turning into high yield stocks.
What’s more, they are still growing profits at quite a pace, so these companies are also growth stocks.
How far could the share prices rise? Well, in 2007 Barratt Developments reached 1200p. So there is still the potential for further growth, as the economy and the housing market gathers momentum. That’s why I think these companies are still strong buys, and are likely to push ahead from here on in.
You see, it is only spring now, but it will soon be summer.