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I’m looking for FTSE 100 to find stocks that could go up in value next year. Here’s one on my radar today.
Cheap, on paper
Taylor WimpeyThe (LSE:TW) share price has fallen in recent weeks, reflecting concerns over how the October Budget could impact housing demand. I think this represents an attractive dip buying opportunity.
City analysts expect builders’ income to fall by 12% this year before rising again by 27% in 2025. This means it offers the best value of all time at current prices of 141p per share.
Taylor Wimpey’s price-to-earnings growth (PEG) ratio for next year is well below the 1 figure. We stay at 0.5.
This Footsie company paid a dividend of 6.8 %.
Risk vs reward
The market is right to be nervous about the impact of the Budget on housing sales. The stamp duty exemption for first-time buyers will end in March, and the fee for second homes will be increased.
However, there is also room for optimism under the government’s broader housing strategy. Plans to raise building rates – by 300,000 homes each year to 2029 – by relaxing planning regulations offer huge opportunities for the likes of Taylor Wimpey.
I believe the long-term outlook for the business remains strong, driven by the housing needs of the UK’s growing population.
And Taylor Wimpey’s huge global bank of 89,000 sites puts it in a good position to exploit this. To put that in context, that’s roughly the size of the Barratt RedrowThe bank follows the recent mega merger.
The business has a strong balance sheet that it can use to increase its holdings. It had a surplus of £584m on the balance sheet as of June.
Improving conditions
This is why I own Taylor Wimpey in my portfolio. In fact, I’m thinking of adding more given the potential for the continued recovery of the housing market, which – if it continues – could result in a sharp re-rating of its shares.
Rightmove’s latest house price data last week beat all expectations. In October, the average house price was £293,999, a new all-time high. To put that in context, that’s more than the £293,507 hit in June 2022 during the post-pandemic boom.
On the same day, Taylor Wimpey announced a huge increase in demand for its homes. Its weekly private sales rate was 0.70 year to date, up from 0.51 in the same period of 2023. And its cancellation rate fell 4% year-on-year to 17%.
Furthermore, Taylor Wimpey’s total order book (excluding joint ventures) was £2.2bn as at 4 November, up £300m year-on-year.
Will it rise?
It is important to note that the housing sector is not out of the woods yet. The effects of the Budget on housing sales are still unknown. An uncertain outlook for the UK economy also adds to the risk.
But I’m also optimistic that the housing sector can continue to emerge from its recent lull, buoyed by continued interest rate cuts that improve mortgage affordability.
And with Taylor Wimpey shares looking cheap, I think a new price rally could be in the offing.
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