People are piling into gold right now, with BullionVault reporting that one UK investor used their smartphone to buy almost £1m of the precious metal in a single trade, via its mobile app. I would urge caution though.
The gold price recently hit a seven-year high of $1,700 an ounce, but has fallen since then. The precious metal always shoots up in times of trouble, but can fall back just as quickly, once the immediate danger passes. If markets feel confident that the coronavirus has been contained, the gold price could swiftly fall even further.
Personally, I wouldn’t hold more than 5% of my portfolio in gold, which pays zero interest or dividends, with price growth entirely dependent on investor sentiment.
Balfour Beatty
I would invest most of my money in a balanced portfolio of top UK companies, using the tax-efficient Stocks and Shares ISA allowance. Right now, I am tempted by the Balfour Beatty (LSE: BBY) share price, which is up a massive 16% today after it reported an 8% increase in group underlying profit from operations to £221m in its full-year results.
The FTSE 250 construction group also reported a 52% increase in year-end net cash to £512m, a 13% increase in its order book to £14.3bn. It is still in recovery mode after issuing a series of profit warnings, and surviving a takeover bid by Carillion in 2014, which was a lucky escape.
Management has been working on cutting costs and narrowing its focus on profitable, workable projects, mostly in the UK and US. Today, it rewarded loyal investors by hiking its dividend 33% to 6.4p
Group CEO Leo Quinn hailed its efforts in creating a scalable business with an increasing order book, that should drive “profitable managed growth and cash generation on a sustainable basis”. The group is paying down around £150m of borrowings in 2020. Balfour Beatty should also profit from HS2.
The share price is stabilised but you can still buy it at just 9.1 times forward earnings, and get a forecast yield of 3.4%, nicely covered 3.2 times by earnings. These could be bumpy times for the economy and construction, depending on how the coronavirus pans out, but if you are brave and optimistic, Balfour Beatty could offer long-term capital growth along with a rising dividend income stream.
Barratt Developments
Or you might prefer to invest in the Barratt Developments (LSE: BDEV) share price instead. This was rising steadily until the recent market panic, but today’s move to slash interest rates could give it a lift by making mortgage borrowing cheaper, and easing the pressure on household finances, to keep the housing market buoyant.
Last month, Britain’s biggest housebuilder reported the highest half-year home completions in 12 years, up 9.1% to 8,314 in total, while revenues rose 6.3% to £2.67bn, and profit before tax climbed 3.7% to £423m.
The £6.9bn group trades at just 9.8 times forward earnings and offers a hugely generous forecast yield of 6.4%, covered 1.6 times by earnings. Despite a post-Brexit referendum dip, the Barratt share price has grown steadily for a decade, and falling interest rates should help it through today’s worries. I would buy it ahead of gold.