I’ve always liked housebuilders, like Taylor Wimpey (LSE: TW) and Barratt Developments (LSE: BDEV), even when they’re not hammered by a pandemic crisis. Now we’re seeing share prices pushed down as a result of Covid-19, I think they’re even better long-term value. The Barratt share price is down 25% since the start of 2020. And the Taylor Wimpey share price has suffered even worse with a 38% fall.
But they’re both turning upwards. Since 22 September, Taylor Wimpey shares have gained 22%, while Barratt shares are up even more at 29%. Does that mean you’ve missed the boat if you haven’t already bought? No, I think there’s plenty more upside for both these stocks.
When I look for shares to buy and hold for decades, I like sectors with good visibility of long-term demand. On that score, it’s hard to think of anything better than housing. Utilities firms like National Grid and SSE, and consumer essentials providers like Unilever are up there too. But people will always need somewhere to live, and I think that should support the Taylor Wimpey and Barratt share prices in the long term.
Barratt doing fine
Long term or not, companies need to survive short-term crises. But I really don’t see any problem here. Barratt has just given us a trading update for the period from 1 July to 11 October 2020. The company told us it’s experiencing “continuing strong customer demand“. And Barratt’s sales rate is up 21% on the same period a year ago. The company completed 4,032 homes in the period, up from 3,252 a year ago. And forward sales at 11 October stood at 15,135 homes (from 12,963 last year).Â
The only downside I see is a bit more pressure on mortgages, with “no mainstream mortgage lenders providing mortgages at 95% for new build homebuyers“. But Help to Buy seems to be plugging the gap.
At 9 October, Barratt’s balance sheet carried £570m in net cash, and the firm has an undrawn facility of £700m. I see absolutely no liquidity problem there.
Taylor Wimpey share price oversold?
Taylor Wimpey is due to deliver its next trading update on 11 November. Results for the six months to 28 June were tough, reflecting the worst of the pandemic crisis and the near total lockdown of house sales. The firm suffered a 56% fall in revenue, to £755m, and recorded an operating loss of £16m. That’s actually not too bad compared to how a lot of firms have been suffering.
But it does come as a bit of a shock for a company with a track record of high margins and growing profits. Coupled with the lack of any more positive updates coming since then, it’s surely the main reason the Taylor Wimpey share price has lost more than Barratt’s.
Solid balance sheet
But again I don’t see any balance sheet problems. Taylor Wimpey had net cash of £497m at 28 June, actually up on the same stage a year previously. That’s partly down to an earlier share placing, but it demonstrates very low risk for those investing today, in my view.
I can see the Taylor Wimpey share price getting a boost as soon as we get the next positive update. I’d buy both.