February has been a bumper month for the FTSE 100, which is now just shy of the 11,000 mark for the first time in history. Loads of stocks climbed, but two in particular caught my eye. Both are in the housebuilding sector, which has been battered since Brexit a decade ago. Is it finally ready to come good?
Housebuilders have suffered from the cost-of-living crisis, the soaring cost of labour and materials, higher mortgage rates, buyer affordability issues, and the end of the government’s Help to Buy scheme.
I’ve always felt the sector would recover once interest rates began to slide. That seems to be happening, and analysts now expect a further 0.25% cut to 3.5% at the Bank of England meeting on 19 March.
Berkeley Group shares are up
I’ve already positioned myself for the sector revival buy adding FTSE 250-listed Taylor Wimpey to my SIPP, but two FTSE 100 housebuilders also tempt me: Berkeley Group Holdings (LSE: BKG) and Persimmon (LSE: PSN). Both climbed in lockstep in February, rising around 7.5%.
Over 12 months, Berkeley is up a 17.5% and Persimmon 30%. Five-year performance figures show the scale of the troubles they’ve seen though. Berkeley is up just 7% in that time, Persimmon is down more than 40%.
High-end London-focused builder Berkeley got a boost on 4 February when JPMorgan upgraded it from Neutral to Overweight and raised its price target from 4,700p to 5,000p. Today, the shares trade at 4,344p. So that would mark a 15% rise if that target is met.
JPMorgan cited improving trends in Berkeley’s core business and said the shares look cheap on a 40% discount. It compares with 31% for the sector.
Berkeley also looks cheap judging by a price-to-earnings (P/E) ratio of 11.7, although the trailing dividend yield underwhelms at just 1%. My Taylor Wimpey shares yield a fabulous 8.2%. Just saying.
There’s still some way to go though. Berkeley’s half-year results in December showed pre-tax profits down 7.7% to £254m, with selling prices falling too. London’s growing undersupply and rising affordability should boost the business over time.
Persimmon looks robust but pricey
Persimmon is pricier, with a P/E of 16.5, but offers a yield of almost 4%. Full-year results, published in January, showed earnings at the top of guidance after a 12% rise in completions to 11,905 homes. That’s higher than anticipated. The board expects underlying pre-tax profit of £415 to £440m and highlighted a “robust order book” for 2026.
Yet it is wary, warning that it’s “not expecting any material improvement in market conditions this year”. I’ll echo that. The UK economy remains fragile, unemployment is rising, and the government is falling short of its ambitious housebuilding targets.
I’d love to say that housebuilding stocks are primed for a boom, but my experience with holding Taylor Wimpey has made me cautious. Both Berkeley and Persimmon are picking up momentum, but the path ahead isn’t smooth. However, I’d rather buy before the recovery than afterwards, and I think both are worth considering today with a long-term view. Income-focused investors might want to check out Taylor Wimpey instead. It rose more than 7% in February too.
