According to the latest figures, the UK construction industry is booming. But I don’t think housebuilder share prices fully reflect the long-term potential growth in the sector. If I didn’t already own Persimmon (LSE: PSN) shares, I’d definitely be buying at least one of the three FTSE 100 stocks I’m looking at today.
Data for June shows the construction sector growing at its fastest for 24 years. And the housing boom spurred by the relaxing of Covid regulations is the key driver. That’s a short-term thing, of course, and I wouldn’t invest based only on that. But I think we’re really just getting back to the long-term trend.
Housebuilder share prices have been doing reasonably well, though they did all suffer in the 2020 crash. Over the past 12 months, Taylor Wimpey (LSE: TW) shares have gained 20%, Persimmon is up 35%, and Barratt Developments (LSE: BDEV) leads the way with a 48% gain.
Buying opportunity?
It has been a period of general recovery, but all three are ahead of the FTSE 100’s 16% gain. Is it too late to get in? Well, they have fallen back a bit since a peak in April. So that could give us a buying opportunity.
There’s very little to show how this building boom is feeding through to bottom lines yet. The most recent update is from Barratt Developments, released in May. That preceded the June surge, but it was still positive. Barratt’s CEO David Thomas said that “we now expect to increase wholly owned completions to between 16,000 and 16,250 homes this year, along with around 650 JV home completions.”
Earlier, we heard from Persimmon’s CEO Dean Finch, telling us it “has made a strong start to the year with current forward sales 23% ahead of last year and 11% ahead of the same point in 2019.”
And at Taylor Wimpey, chief Pete Redfern said “The UK housing market continues to be resilient and we are trading in line with our full-year expectations.”
FTSE 100 updates
We’re due first-half results from Taylor Wimpey on 4 August, but before then we’ll have trading updates from the other two. We’ll hear from Persimmon on 8 July, and then Barratt will enlighten us on 14 July. If those announcements confirm what we’re hearing about a construction upswing, I can see these share prices leading the FTSE 100.
But what could go wrong? Well, two immediate risks spring to mind. One is the chance of a fresh Covid resurgence as restrictions look like coming to an end this month. Health Secretary Sajid Javid has already suggested cases could rise as high as 100,000 per day.
I’m also not as bullish on the economy as some. Things might look good over the next few months against the pandemic backdrop. But I reckon it’ll be a few years before we get a real feel for where our post-Brexit economic ship will be sailing.
Already high enough?
Then there’s the possibility that these three FTSE 100 shares are already high enough to cover the opportunities and the risks. Oh, and housebuilders tend to be a bit cyclical too.
On balance, though, I’m upbeat about the prospects for July and beyond. A sector top-up is definitely a possibility for me.