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Prudential

What it does: Prudential is a life insurance and asset management company operating solely in Asia and Africa.

By Andrew Mackie: Following the spin-off of its UK and US businesses, Prudential (LSE: PRU) is now focused entirely on some of the world’s fastest growing markets. This makes complete sense when one considers its growth drivers. Across Asia, for example, despite rising levels of prosperity, insurance penetration is still extremely low. This market is estimated to be worth $1.8trn.

What I particularly like about Prudential is that it is diversified across geography, channel and product. Not only does this provide it with multiple sources of growth but also adds resilience to its business performance. Its distribution network encompasses over 500,000 licensed agents as well as through partnerships with banks (known as bancassurance).

Prudential’s share price has come under severe pressure throughout 2022. It is down 30% year to date. This has been primarily driven by the ongoing closure of the border between Hong Kong and Mainland China. This has hit revenues in its largest market. However, when one considers the explosive growth potential across several of the regions it operates in, today’s depressed share price offers investors an attractive entry point.

Andrew Mackie owns shares in Prudential.

Games Workshop

What it does: Games Workshop designs, manufactures, and sells fantasy miniatures for its Warhammer tabletop gaming experience.

By Zaven Boyrazian. Games Workshop (LSE:GAW) is arguably one of the world’s most recognised tabletop gaming companies. This is the group behind the immensely popular Warhammer franchises, generating the bulk of its revenue through selling miniatures to hobbyists through its global network of retail partners.

Over the last 12 months, the share price hasn’t been the best performer, dropping by over 40%. It seems investors are growing increasingly pessimistic about the short-term performance of this consumer discretionary business. And the latest trading update did show some shrinkage in profits, as consumer spending takes a hit from the cost-of-living crisis.

However, this drag on earnings ultimately stems from a short-term problem. And with the group’s long-term strategy still intact, backed up by an impressive cash war chest of £71m, I can’t help but see the recent share-price drop as a buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Games Workshop.

Smurfit Kappa Group 

What it does: Smurfit Kappa manufactures packaging products for e-tailers, supermarkets, consumers and industrial customers. 

By Royston Wild. A slew of positive trading updates from the packaging sector would encourage me to buy Smurfit Kappa Group (LSE: SKG) shares for November. 

The FTSE 100 business released financials of its own on Wednesday, 2 November. I think this could help it to record further healthy share-price gains across the month, and beyond. 

Industry rival Mondi reported a 55% rise in underlying EBITDA in the third quarter, it reported in October. It commented that “higher average selling prices and overall volume growth more than offset significant cost pressures.” 

Shortly before this, DS Smith announced that it expected “very strong” revenues growth in the six months to October. Trading was so strong in fact that the firm lifted its half-year profits forecasts. 

Smurfit Kappa’s cheap share price certainly leaves scope for fresh gains if its own financials impress. The packaging powerhouse trades on a forward price-to-earnings (P/E) ratio of just 7 times. 

Royston Wild own shares in DS Smith. 

AstraZeneca

What it does: AstraZeneca is a biopharmaceutical company that develops medicines used by millions of patients worldwide.

By Charlie Carman. AstraZeneca (LSE: AZN) has been a top FTSE 100 performer for a decade. An anticipated return to pre-Covid levels of cancer diagnostics should boost sales for the healthcare heavyweight’s range of oncology products, including Tagrisso, Lynparza, and Imfinzi.

Indeed, AstraZeneca is well positioned for an ongoing transformation in global demographics. Demand for pharmaceuticals to treat chronic diseases continues to rise, and the World Health Organisation predicts one in six people will be aged over 60 by 2030.

Disappointingly, the business suffered a recent setback in a trial for a nasal spray version of its Covid-19 vaccine. Initial testing revealed it didn’t provide adequate protection in humans. However, there’s more to the company’s drugs portfolio than coronavirus treatments, and I think growth prospects look bright elsewhere.

AstraZeneca’s share price has fallen nearly 15% since reaching a 52-week high in August. I believe this presents an attractive buying opportunity to increase the position in my shares.

Charlie Carman owns shares in AstraZeneca. 

Persimmon

What it does: Persimmon builds houses. And when prices are right, it builds up its land bank to build even more houses on.

By Alan Oscroft. The long-term argument for investing in Persimmon (LSE: PSN) is, I think, straightforward. The UK is in the grip of a chronic housing shortage. And our listed housebuilders enjoy strong barriers to entry.

The short-term argument against buying now is the economy, and the growing fears of house price weakness. After all, the Persimmon share price has fallen 50% over the past 12 months, and we don’t want any of that, do we?

Well, actually, I remember the previous housebuilder slump, and I noticed Persimmon was buying up building land when it was cheap. And after that, the shares entered a long and strong bull run. So what’s happening now? Persimmon has been buying up land again.

But the bottom line for me is a P/E ratio of only about five, and a 19% forecast dividend yield. The short-term risks are real, but I think Persimmon is oversold.

Alan Oscroft owns Persimmon shares.

Renishaw

What it does: Renishaw designs and manufactures high-precision measuring equipment and healthcare technology.

By Stephen Wright. I’ve gone for FTSE 250 stock Renishaw (LSE:RSW) as my best British shares to buy in November. This is a business that’s growing, is well protected, and has a strong balance sheet.

Renishaw makes specialist equipment, which it sells to various end markets, including agriculture, healthcare, and power generation. The company has over 1,800 patents protecting its products. 

The company’s balance sheet also looks sound to me. Renishaw has £16.25m in total debt and £141m in cash, which means that I don’t think it’s in much danger with interest rates rising.

Earnings have been growing at an average of 6% annually over the last decade. But the stock has fallen by almost 30% since the start of the year and is now trading at a P/E ratio of 21. 

Stephen Wright does not own shares in Renishaw.

Taylor Wimpey

What it does: Taylor Wimpey is one of the UK’s largest housebuilders, selling homes to private customers and local housing associations

By Paul Summers. The share prices of UK housebuilders have come under serious pressure in 2022 over concerns that rapidly rising interest rates and a protracted recession will dampen demand. Taylor Wimpey (LSE: TW) has been one of the biggest casualties, losing half its value since the beginning of the year.

This may be an opportunity for long-term-focused Fools like me. The FTSE 100 firm is clearly in far better financial health than it was during the Great Financial Crisis. And while dividends can’t be guaranteed, the 10% yield also looks more secure than the payouts on offer from Taylor Wimpey’s rivals. 

CEO Jennie Daly’s comments on the company’s outlook will be closely scrutinised when it releases a trading update early in November. With a P/E of just five, however, I suspect a lot of fear is already priced in. 

Paul Summers has no position in Taylor Wimpey.

Legal & General

What it does: Legal & General is a British multinational company that provides insurance, savings and investment products.

By Nathan Marks. I’m looking to Legal & General (LSE:LGEN) for my top British shares to buy for November. As one of the UK’s largest pension funds, it’s been grappling with the recent chaos in the bond market.

The Bank of England took emergency intervention in early October. That was to mitigate a material risk to the financial stability of the types of services that Legal & General provides. However, the company said that this episode had a “limited economic impact” on its businesses and still expected a full-year operating profit of 8%.

Market volatility could still worsen, causing further uncertainty in the company’s balance sheet and liquidity. However, the stock looks great all-round value and I think it’s been oversold. Today it trades at a P/E ratio of 6.8 and yields a very attractive 8.2% dividend.

It’s hard for me to ignore this strong business with historically robust demand for its products and services.

Nathan Marks has no position in Legal & General.

International Airlines Group

What it does: International Airlines Group is an Anglo-Spanish multinational group that is host to renowned airlines such as British Airways, Iberia, Aer Lingus, Level, and Vueling.

By John Choong. Despite a potential recession on the cards, travel demand still remains robust. As such, I think International Airlines Group (LSE:IAG) shares look lucrative at their current price.

In its most recent trading update, the firm disclosed that demand for travel remains strong and is still recovering to 2019 levels. There also seems to be an uptick in business and upper-class travel, which was echoed by its American competitors. CEOs are of the opinion that consumers are still spending despite inflationary pressures, just less on goods but more on services. Therefore, IAG is expected to benefit as the holiday season approaches.

Nonetheless, it’s worth noting that IAG’s high debt-to-equity ratio (107%) isn’t ideal in a high interest rate environment, and is something investors should definitely take note of. The group will have to hope that its free cash flow continues to remain robust through an economic slowdown in the medium term, or risks damaging its bottom line and sending its share price back down.

John Choong has no position in IAG.

Have the shares actually been a good overall investment recently though? Let’s take a look at how much money I’d have today if I’d invested £5,000 in the stock a year ago.

Taylor Wimpey shares have fallen

On 1 November 2021, Taylor Wimpey’s share price ended the day at 151p (I’ll use this figure as my starting share price). However today, the stock is trading at 94p – 38% lower.

This means if I had put £5,000 into the stock 12 months ago, my capital would now be worth about £3,110 (ignoring all trading commissions). That’s not a good result.

Of course, we also need to factor in the big dividends here. If I’d bought the stock a year ago, I would have received one dividend payment of 4.44p per share in May. And I’d be entitled to another dividend payment of 4.62p per share, which is set to be paid out on 18 November. Assuming I took these in cash and didn’t reinvest them, these dividends would be worth about £300.

Putting the original investment and the dividends together, the total comes to around £3,410. So, overall, I’d be down a little over 30% on my original £5k investment.

That’s a disappointing result. To put it in perspective, if I’d invested my £5,000 in a basic FTSE 100 tracker fund, I’d now have about £5,040.

Lessons from the share price fall

I think there are a couple of takeaways from these calculations. One is that housebuilder stocks can be very volatile due to their cyclical nature.

House building is a boom and bust industry. As a result, investors will flee the sector if there’s a hint of an economic downturn. This can push share prices across the sector down significantly. So portfolio diversification is very important when investing in these stocks.

If I owned a bunch of housebuilder stocks, I’d diversify into other more ‘defensive’ sectors such as consumer staples and healthcare for portfolio protection.

Another takeaway here is that it’s not wise to buy a stock just because it offers a high yield. When investing in stocks for income, it’s a good idea to think about the total returns (capital gains and dividends) a stock can provide.

There’s not much point in picking up a 7% yield from a stock if it has the potential to lose 30% of its value, or more, in the blink of an eye. It’s going to take many years of dividends to make up for that kind of capital loss.

I learned this last lesson the hard way. So now, when I invest in dividend stocks, I tend to go for more stable, defensive companies such as Unilever and Reckitt. These stocks don’t offer high yields like the housebuilders do. However, they also don’t experience the kind of wild share price volatility that housebuilders do.

This is more than double than the FTSE 100 forward average of 4%. And things get even better for 2023. For then the dividend yield marches to 9.9%.

I already own Taylor Wimpey shares in my portfolio. Should I buy more on the back of its exceptional dividend estimates?

Dividend growth

Like many UK shares, Taylor Wimpey axed shareholder payouts for 2019 following the onset of Covid-19. However, strong housing market conditions enabled it to restart its dividend policy straight away.

In 2020, the business paid a full-year dividend of 4.14p per share. And last year it supercharged the payout to 8.28p.

City analysts expect the yearly shareholder reward to keep rising too. Payouts of 9.1p and 9.52p per share are predicted for 2022 and 2023 respectively.

Based on dividend cover I think there’s a good chance of Taylor Wimpey meeting these forecasts as well. Anticipated payouts are covered 2.1 times by predicted earnings this year. However, coverage weakens to 1.8 times for 2023.

A reading of two and above gives a decent margin of safety for investors.

Growing risks

That being said, I wouldn’t bet the house (so to speak) on Taylor Wimpey meeting dividend forecasts for next year.

Home prices rose 9.5% on an annual basis last month, according to Nationwide. But signs of turbulence are creeping into the market. Average house values actually flatlined month on month in September, at £272,259.

On the one hand, a shortage of available homes could keep prices moving higher. But then the number of mortgage deals being pulled from the market is accelerating.

There’s also the potential for colossal interest rate hikes as inflation soars and political uncertainty persists. Economists currently expect the Bank of England benchmark to surge above 5% in 2023, more than double current levels of 2.25%.

The verdict

I think the long-term outlook for the UK housebuilding sector remains bright. Home ownership is a vote winner and so government support like the Deposit Unlock scheme should remain in place.

Fierce competition among mortgage lenders is also helping first-time buyers get their foot on the ladder. Then there’s the simple fact that Britain’s population is growing and demand for accommodation is increasing.

Meanwhile, plans to boost homebuilding to meet demand remain wholly inadequate. It’s a problem that goes back decades. And the government’s recent decision to ditch construction targets doesn’t help.

However, growing uncertainty in the short-to-medium term is discouraging me from buying more Taylor Wimpey shares.

The business aims to pay at least £250m worth of dividends each year. But a possible housing crash could put paid to these plans. Economist Simon French of Panmure Gordon, for example, has tipped a 14% fall in home prices over the next three years.

Until the housing market outlook improves I won’t be adding more Taylor Wimpey shares to my portfolio.

In which direction? Well, that’s open to debate.

Next

Reporting early next month is clothing and home retailer Next (LSE: NXT).

The fact that it scores consistently well on quality metrics suggests the £6bn cap is one of the best retailers in the entire UK market. Unfortunately, this is easily forgotten in a period of market malaise such as the one we’re in. The shares were down 41% year-to-date by the end of Friday.

This isn’t hard to fathom. As a general rule, any company that relies on discretionary spending tends to do badly during recessions. I don’t see Next being the exception here. And if sales have been even worse than anticipated, there could be more pain to come for existing holders. Full-year profit guidance was already reduced by £20m to £840m in September.

On the flip side, even a slightly better-than-expected statement on 2 November could be warmly received by a market desperate for something to smile about.

I’m content to watch rather than buy Next shares for now.

Taylor Wimpey

Top league housebuilder Taylor Wimpey (LSE: TW) delivers its latest update on 9 November. After halving in value in 2022, investors will be hoping for something, anything, to stabilise the share price.

I think they may be disappointed, at least as far as the outlook for trading is concerned. While completions may have been fairly steady over the summer, the recent rise in interest rates is likely to be impacting demand for new homes.

How much of all this is priced in? I suspect a fair bit. The stock already changes hands on a seriously low price-to-earnings (P/E) ratio of five. What’s more, it yields a forecast 11%, at least for now.

That last bit is important. While earnings should cover the payout, I’m wary of relying too much on Taylor Wimpey for generating passive income going forward.

Again, I’m keeping my powder dry until after that statement.

Halma

Last on today’s list of FTSE 100 stocks that I’ll be watching is Halma (LSE: HLMA). Of the three I’ve highlighted today, I’d say this company is the least cyclical. Halma specialises in life-saving technologies across three market areas: Safety, Environment and Health– not the sort of things that employers can afford to ignore thanks to increasing regulation.

Notwithstanding this, 2022 hasn’t been a vintage year for those already holding. The company’s valuation has sunk 35%.

Despite this fall, Halma shares still change hands at a P/E of 29. That’s still high, at least relative to many/most other UK-listed shares. While I do think this premium can be justified to some extent (Halma has an unbroken record of increasing its dividend by 5% or more for the last 43 years!), it’s still not ideal in the current climate. There’s a risk we could see a big move in the price if the half-year numbers on 17 November disappoint.

There is, however, something to be positive about here. Unlike Next, Halma retained its full-year guidance in September. Perhaps the worst is over.

Regardless, I still remain very interested in opening a position here.

A sell-off too far?

But, has the sell-off gone too far? Taylor Wimpey’s shares are now lower than they were in March 2020. That was the start of the coronavirus pandemic when Boris Johnson told the nation to stay at home and Britain’s construction workers downed tools for a period.

Despite the recent steady flow of disappointing economic data, surely things aren’t that bad?

Half-year results

Well, Taylor Wimpey’s half-year results weren’t all doom and gloom.

Although revenue was down 5.4% to £2.1bn, operating profit was up 0.1% to £425m.

Encouragingly, despite inflation in the building sector running close to 10%, Taylor Wimpey managed to increase its operating profit margin from 19.3% to 20.4%.

Looking forward

The future looks positive with the company’s order book worth £2.8bn. Taylor Wimpey also has a land bank of 88,000 plots.

The board expects full-year operating profit to be at the top end of the current market consensus range.

Cladding

However, investors have been nervous about the impact of the cladding crisis on the construction sector.

Taylor Wimpey has signed the government’s Fire Safety Pledge for Developers. This means the company will have to pay for the replacement of dangerous cladding, but this is now fully provided for in the accounts, and there should be no more bad news on this front.

The recent dramatic fall in the share price has increased the dividend yield to an impressive 10%. The firm has also concluded a £150m share buyback programme.

Caution

But, there’s one warning sign that makes me a little nervous.

In her upbeat statement, which accompanied the half-year results, CEO Jennie Daly said: “There remains good availability of attractively priced mortgages.”

But, that was in August. Since then, Kwasi Kwarteng has delivered a mini budget that sent markets into turmoil. Nearly 2,000 mortgage products have since been removed from sale.

I doubt whether Taylor Wimpey’s boss would be able to repeat her statement now.

Government policy

However, the government has said it’s intending to reform the planning system, making it quicker to get new developments built.

There’s even talk of a replacement for the Help to Buy scheme, which is intended to help first-time buyers get on the housing ladder. The present scheme is due to end in March next year.

Stamp duty cuts have also been promised, although current government turmoil means the situation could change.

What am I going to do?

Investing is all about the long term and, right now, Taylor Wimpey’s shares do look cheap.

However, I already own shares in Persimmon, Britain’s biggest builder.

The Persimmon share price has also fallen by 45% this year, and I’m nursing some paper losses. Investing in Taylor Wimpey would mean too much of my portfolio being concentrated in one sector.

So, although I think there’s money to be made from Taylor Wimpey, because of my shareholding in Persimmon, I’m not going to buy at the moment. Otherwise, I would be including the stock in my portfolio.

The shares look cheap

Taylor Wimpey shares certainly look cheap at current levels. Right now, City analysts expect the group to generate earnings per share of 19.4p for 2022. This means that at the current share price of 88.5p, the forward-looking price-to-earnings (P/E) ratio is under five, assuming earnings actually come in at this level (more on this below). That’s well below the average FTSE 100 P/E ratio.

Huge dividend yield

Meanwhile, after the recent share price fall, the stock now sports a monster dividend yield. At present, analysts expect Taylor Wimpey to pay out 9.3p per share in dividends for 2022. That translates to a yield of about 10.6% at today’s share price.

Too good to be true?

The thing is though, if a stock looks too good to be true, it often is. And I suspect this could be the case here.

Taylor Wimpey is facing some major challenges right now. With economic conditions deteriorating and interest rates rising rapidly (five-year mortgage rates have jumped from under 3% a few months ago to around 6% today), the outlook for housebuilders is very uncertain. This backdrop could potentially lead to a sharp drop in demand for housing, as well as lower house prices, which could impact Taylor Wimpey’s revenues and earnings (and send the share price lower).

It’s worth noting that last month analysts at Berenberg said that they expect 2023 to be the toughest operating environment for the UK housebuilding industry since the Global Financial Crisis (GFC) of 2008/2009. Meanwhile, analysts at HSBC said they expect a 20% slump in UK housing demand for a year from this autumn.

Given the backdrop, I think there’s a real chance that Taylor Wimpey’s revenues and earnings could fall short of analysts’ expectations this year and next. So the stock may not be as cheap as it appears to be.

Dividends too could fall short. In economic downturns housebuilders have a habit of cutting or canceling their dividends. We saw this during the GFC and we also saw it during the early days of the Covid pandemic. So I would take the massive yield here with a grain of salt. If earnings are weaker than expected, the dividend payout could be significantly lower than expected.

My move now

Weighing up the low valuation and the high yield versus the risks, I won’t be buying Taylor Wimpey shares for my portfolio. For me, the level of uncertainty here is too high.

In the current environment, I’m going to focus my attention on companies that have dependable revenues, cash flows, earnings and dividends.

Headwinds abound

To be clear, there is little by way of positive news in the housebuilder sector. It is important to summarise some of the many factors that are reflected in share price’s poor performance.

Construction costs are rising. Supply chains are still not back to their usual pre-pandemic efficiency. Raw materials such as lumber, bricks and cement remain at elevated prices. Material cost increases of up to 24% are quoted by the industry.

This is further exacerbated by shortage of labour, skilled and otherwise. This drives up wages as well as delaying completion dates, which can carry financial penalties.

On the demand side, we see a customer base that is reluctant to commit to more expensive mortgages on account of rising interest rates and a general inflationary increase in the cost of living. The ability to pass on increased costs to the customer is therefore limited.

Any bright spots at all?

The main consideration here is that most of these threats to the industry have already been priced into the share price. Therefore, I am taking the view that any possible improvement in economic conditions, however fleeting, should be immediately reflected in a rising share price. What that might be is harder to quantify. It could potentially be a slowing or even a stall in interest rate rises or inflation. Or a softening in commodity prices, for example.

Should that occur, I believe Taylor Wimpey is well positioned to benefit. Its cash position, for instance, is strong. Consequently, it has the necessary reserves to add to its landbank at more competitive prices when the opportunity presents.

An income favourite

I believe that the most compelling argument for Taylor Wimpey’s future performance is that it is already a favoured income stock. Its declared interim dividend of 4.62p is up 8% from last year.

With a healthy dividend cover of 2.10, there is more than sufficient cash flow in the company to cover these dividends. Additionally, with a present inflation-busting dividend yield of 9.22%, I am going to assume this stock is going to be on many investors’ shopping lists. 

Therefore, my hypothesis is that as soon as we see some economic tailwinds, Taylor Wimpey will be one of the main beneficiaries of new funds flowing into a revitalised housebuilding sector. As such, I think it is time to commit some of my funds to this stock. And perhaps add further on any evidence that the current economic malaise may be changing for the better.

With the Bank of England stepping in to restore orderly financial conditions, a deeper crisis may have been averted.

Cheap dividend shares

That could bode well for long-term savings and retirement business Phoenix Group (LSE:PHNX).

Yes, the economic environment remains uncertain. Any further disruption to financial conditions could negatively impact Phoenix in the near term.

But due to the recent drop in the share price, it offers a whopping 10% dividend yield. I don’t think this opportunity will last much longer, so I’m keen to buy it soon if funds allow.

Just two weeks ago, it was yielding ‘only’ 8%. That helped to make it one of the best dividend shares in the FTSE 100. Now, the opportunity is even better, in my opinion.

Dividend shares aren’t just about the yield, though. I prefer those that offer sustainable, affordable and reliable dividends. I reckon Phoenix Group ticks those boxes too. Its dividend cover of 1.8 times, and 13 years of consecutive payments looks impressive.

Looking ahead

Next, I’d consider housebuilder Taylor Wimpey (LSE:TW.). But why would I even think about buying shares in this sector when the outlook looks so dire?

This industry could face challenges with a potentially weaker UK housing market. Interest rates are rising, and mortgages are becoming more expensive as a result. The cost-of-living squeeze could also put additional pressure on affordability.

So far, house prices have proved resilient. But I think that could be about to change, and I’d expect a more challenging period ahead.

That said, Taylor Wimpey’s share price has already fallen by 33% over the past year. And its price-to-earnings ratio has fallen from 9 times to 5 times so far this year, which makes it remarkably cheap. It could be argued that a weaker housing market outlook is already priced into the shares.

Its chunky 10% yield looks appealing to me. If I had some spare cash, I’d buy these dividend shares today for the passive income they could provide.

Stable passive income

Lastly, I’d pull the trigger on Legal & General Group (LSE:LGEN). It offers an appealing 9% yield. This insurance business is well-established. Impressively, it has been distributing regular dividends for over 30 years. This is just the kind of reliability I like to see in the best dividend shares.

The financial services firm reported that market volatility had limited economic impact on the company. That could make recent share price falls an opportunity, in my opinion.

CEO Nigel Wilson commented, “Our businesses are resilient, and we are on track to deliver good growth in key financial metrics for 2022.”

I have to bear in mind that share price growth has been limited over the past few years. And a weaker economy could limit the significant growth seen in the past.

That said, its solid dividend yield should make up for it. With growing earnings, a sensible balance sheet and a well-covered dividend, I’d certainly buy these dividend shares if I had some extra cash.

Heavy winds

Fears of a declining property market have been making the news for the past couple of months. This has been evident in the most recent housing data. Reports from the likes of Nationwide, Halifax, and RICS have all been pointing towards a declining market as of late. All this data doesn’t bode well for housebuilders such as Taylor Wimpey.

To rub more salt into the wound, Taylor Wimpey’s lack of projects in London and the south east could see its top line impacted more than its peers. This is because houses in those regions tend to be more insulated against crashes due to unprecedented demand. This is also why the Berkeley share price has managed to outperform the rest of its peers.

Falling dominoes

What caused the Taylor Wimpey share price to drop 15% last week, however, was Kwasi Kwarteng’s new mini-budget which caused the British pound to crash. As such, investors are expecting the Bank of England to radically hike interest rates at its next meeting. This could inevitably bring mortgage rates to highs not seen in decades and be the start of a domino effect in triggering a property market crash as over 2m households have to remortgage at a higher rate next year.

While the latest Taylor Wimpey trading update painted a rather positive outlook, things have turned south very quickly. Management had previously mentioned that higher costs were being offset by higher property prices. However, this was due to demand outstripping supply. As a result, it saw healthy margins with a strong order book. But if mortgage rates spike rapidly, Taylor Wimpey could face cancellations flooding in, and see its top and bottom lines significantly impacted.

Strong foundations

Brokers and economists have been predicting a property market crash of anywhere between 10% to 20% over the next two to three years. However, with the Taylor Wimpey share price down 50%, I believe its shares are currently in oversold territory. While the short term could present further downside, I believe the long-term prospects surrounding the company and the UK property market remain bright.

The firm’s balance sheet is rock solid, after all. With a debt-to-equity ratio of 2%, consisting of £4.28bn in cash and only £87m of debt, the company is undoubtedly in an excellent position to weather a property market crash. I also have confidence in CFO Chris Carney to allocate capital efficiently as he has a good track record of capital discipline.

Additionally, it’s worth pointing out that no revisions to the company’s price target have been made thus far. Analysts still rate Taylor Wimpey a moderate buy. Moreover, it still holds an average price target of £1.47, presenting a 65% upside. Therefore, I’ll be putting Taylor Wimpey on my watchlist for now, and may consider buying shares if its share price continues to go lower.

The FTSE index has fallen a whopping 6% from its September highs of a fortnight ago. And the panic has seen top-quality stocks sold alongside more vulnerable, highly cyclical companies.

Here are two great shares I think could be too cheap to miss. They trade on rock-bottom price-to-earnings (P/E) ratios and one boasts market-beating dividend yields.

Taylor Wimpey

Housebuilder Taylor Wimpey (LSE: TW) is a stock market bargain that I already own. And despite the rising dangers it faces from interest rate hikes, I’m tempted to buy some more.

Heavy share price falls means it trades on a forward P/E ratio of 4.6 times today. Its dividend yield meanwhile has shot to 10.1%.

The collapsing pound, and fears of higher inflation due to the government’s planned tax cuts, mean that interest rates could soar. The market is increasingly expecting the Bank of England benchmark to move to around 6% next year, up from current level of 2.25%.

This has the potential to sink homes demand as buyer affordability is rattled. Analysts at Credit Suisse warn that home prices could collapse between 10% and 15% in this scenario.

It’s my opinion though, that Taylor Wimpey’s slump to seven-and-a-half-year lows this week (to below 90p per share) reflects this threat.

Besides, as a long-term investor, I still find the company’s profits outlook beyond 2022 and 2023 highly attractive. The supply-and-demand imbalance that’s powering home prices steadily higher (they increased 8.7% in September) should return in force due to persistently weak housebuilding activity.

That’s assuming home sales sink in the first place which they may not. That September home price data shows how resilient the housing market has remained in spite of the cost-of-living crisis and repeated interest rate rises.

JD Sports Fashion

Retailer JD Sports Fashion (LSE: JD) has collapsed due to fears over declining consumer spending and accelerating cost inflation. In fact, it’s the third-largest faller on the FTSE 100 over the past week.

As a consequence, JD now trades on a forward P/E ratio of just 8.4 times. I think this is terrifically cheap given the company’s ongoing resilience (revenues rose 12% between February and July despite the cost-of-living crisis).

Robust trading reflects rock-solid demand for athleisure (sports fashion) goods and the exceptional brand power of the products the company sells. Nike, Adidas trainers and hoodies and the like still sell strongly even when economic conditions worsen.

I’d buy JD Sports shares too as the athleisure market is tipped to keep rapidly expanding. Some are even tipping annual growth of 9.9% through to 2028. This could help the company’s shares rebound strongly from their current lows and deliver fat investor profits.