The nation’s largest housebuilder Barratt Developments (LSE: BDEV) still hasn’t fully recovered from the post-Brexit sell-off that saw the value of its shares fall to three-year lows in the days following the historic vote to leave the European Union. Many investors will no doubt be wondering whether to take a gamble and buy shares in the FTSE 100 firm at a heavily discounted price or to wait until the effects of Brexit are better understood.
Brexit impact?
Personally I don’t think anyone really knows what the long-term effects of Brexit will actually be, and as the referendum result and Donald Trump victory have shown us, putting too much faith in expert predictions could prove rather foolish. One thing I know is that those investors who took the plunge in June and opted to buy into housebuilding and construction, will no doubt be sure they’ve spotted a bargain in the wake of the post-Brexit vote panic and will just sit back and wait for a long term share price recovery. But were they right and is Barratt the one to back?
In its most recent trading statement the Leicestershire-based housebuilder said that overall market conditions remained healthy with the group trading well since the start of its new financial year, which incidentally began exactly one week after the EU referendum on 1 July.
Economic uncertainty
The board did however acknowledge the potential for economic uncertainty following the vote, but insists that market fundamentals continue to be robust. Barratt’s focus on maintaining good operational and financial performance, and delivering attractive shareholder returns, should help existing shareholders feel a little less insecure. An expected dividend payout of 34.37p per share gives a gigantic 7.3% yield for FY2017, covered 1.5 times by forecast earnings.
Of course Brexit will have increased the risk level for housebuilders such as Barratt. But I believe that with a P/E rating of just nine for the current financial year to June, coupled with that delicious dividend, brave investors could benefit from a significant share price recovery and generous levels of income over the longer term.
Ageing societies
Barratt Developments isn’t the only blue-chip firm on sale this January. Private hospital group Mediclinic International (LSE: MDC) has also caught my eye so far in 2017, and I believe there could be significant upside potential for investors willing to dip a toe into one of the lesser-known businesses in the FTSE 100. I expect to see Mediclinic do well in the coming years with ageing societies, favourable demographics and rising incomes in its chosen markets helping to drive growth in the years ahead.
Shares in the South Africa headquartered business trade on an expensive-looking P/E ratio of 20 for the current year to March, but this falls to a more reasonable 17 for fiscal 2018 after an anticipated 20% rise in underlying profits. Recent share price weakness means the shares are trading at a 30% discount to summer 2016 levels, and now could be the perfect time to grab a slice of this growing international healthcare provider.