2 UK shares investors should consider keeping a tightrope

Many UK stocks have advanced throughout 2024, with some even delivering triple-digit returns. However, not all businesses have been so lucky. Despite their popularity, these two stocks seem to have fallen into hot water recently. I do not own the shares and I think investors should be careful when considering them for their portfolios.

Excitement surrounding the home builders

One of the big promises from the newly elected Labor government is to simplify the planning permission process for housing. Couple this with falling mortgage rates and rising home prices, homebuilders love it Persimmon (LSE:PSN) appears to be on track for much improved performance as we head into 2025.

Evidence of this is already beginning to show in the company’s results. As of the latest third quarter results, management reiterated its goal of delivering 10,500 homes by the end of 2024 compared to 9,922 delivered in 2023. And if this momentum continues, the team could return to completing about 15,000 a year.

However, the UK has long struggled when it comes to housebuilding targets. And judging by the latest data from the S&P Global UK Construction PMI, British housebuilding has once again taken a hit.

To date, Persimmon has completed 5,861 homes since the beginning of the year. This means it needs to complete another 4,639 to reach its goal. Historically, the fourth quarter has been the most productive season for Persimmon. But that leaves little room for error if it wants to hit its target, especially since it’s up 10% from 2023.

Any unexpected delay or lack of materiality can lead to the disappointment of the shareholders. And with the UK still facing a shortage of skilled tradesmen to build houses, the long-term potential of the sector continues to be impaired, even if planning permission is easier to obtain.

The future of tobacco

Tobacco businesses are not for everyone. Ignoring the ambiguities of investing in these businesses, companies prefer British American cigars (LSE:BATS) are operating in an increasingly regulated environment. Despite this, management continued to increase shareholder payouts. And even today, the stock continues to offer a healthy 8% yield, even after shares rise nearly 30% in 2024.

Today, there are approximately 1.25 billion smokers in the world, according to the World Health Organization. And the general consensus is that this number will decrease over time. After all, smoking rates have been steadily declining over the past 20 years. However, given population growth, analysts at Panmure Liberum estimate the number of smokers will drop to just 1.2 billion by 2050.

It sounds like these UK tobacco shares have a long life. But personally, I’m losing weight. About 80% of smokers live in low- and middle-income countries outside the US, UK, and Europe. Yet 80% of British American income comes from these rich countries, which is also where tobacco laws are the strictest.

There is no doubt that this is why managers have invested in other products such as vapes. However, the growth of these products is beginning to falter as competition in this new market intensifies.

For now, British American appears to be holding up and generating the cash flow needed to maintain profits. But the battle seems to be getting tougher. And if its entry into the alternative tobacco market fails, its status as a Dividend Aristocrat could soon end.