That’s MJ Gleeson (LSE: GLE), which builds homes on brownfield land in what it terms “challenging communities” in the North of England.  This means marketing homes with an average selling price of £124,000 to low income buyers who are generally ignored by bigger homebuilders.

This is appealing to investors for several reasons. For one, purchasing former industrial land, reclaiming it and rezoning it into housing stock means the company can buy its properties for very low prices compared to rivals.

Furthermore, selling homes at relatively low prices means the company is insulated from external issues such as the increased stamp duty, strengthening pound or Brexit-related worries that are creating headaches for developers in the south of the country.

This is borne out in the company’s financial results for the half year to December, when an increase in housing plots sold and rising prices buoyed revenue by 34.7% to £73.7m for its homes division, while operating profits jumped 44.7% to £12.3m.

Improved margins boosted the group’s period-end net cash balance to £26.7m and allowed management to increase its interim dividend payout by 38.5% to 9p per share. With its shares trading at just 14.6 times earnings, a 3.6% dividend yield and solid growth prospects, I think MJ Gleeson could be an attractive option for investors wanting exposure to the property sector.

All its eggs in one basket

On the other hand, I’m steering well clear of London developed Capital & Counties (LSE: CAPC). The company has two developments, one in progress in Earl’s Court and another already well established in Covent Garden.

And while the Covent Garden estate continues to perform well, with its value increasing by 4.3% year-on-year on a like-for-like basis, the Earl’s Court development’s value plummeted by 11.8% during the year. Management blamed political and economic uncertainty for the falling value of this development and for the time being it looks like these twin problems will continue to haunt developers as Brexit negotiations drag on.

For now this isn’t a huge issue as the Earl’s Court development is still very much a work in progress and Capital & Counties is a long-term developer with low levels of leverage. However, over the long term, the company’s prospects still rely entirely on continued gains for property prices in London.

And while London property has proved resilient in previous downturns, I’m not entirely convinced the capital’s housing market can continue to appreciate astronomically forever, especially as Brexit begins to bite in a few years’ time. With that in mind, there’s little chance I’ll be investing in Capital & Counties any time soon.

The post One property stock I’d buy today and one I’d sell in a heartbeat appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But, despite all this good news, the shares are down 2.55% at the time of writing. And unfortunately, it’s nothing under the group’s control that’s loosening the once mighty hold homebuilders held over investors.

The main reason, of course, is the jitters over the state of the UK economy and the domestic housing market in particular. This is nothing new, and with every new survey that shows consumer confidence weakening in addition to the normal gossip over the Brexit process, expect the uncertainty to further lower demand for homebuilders.

On top of this, there is also the growing outcry amongst the public and certain sections of the press against the government’s Help To Buy scheme that some are claiming did nothing to alleviate the housing shortage and instead simply lined the pockets of homebuilders and their shareholders. With over 40% of its homes sold with Help To Buy backing, any changes to this programme would be understandably negative for Barratt.

These headwinds and rising interest rates are why I reckon buying Barratt at this point in the economic cycle could be a mistake, despite the seemingly cheap valuation of 10.4 times earnings and respectable 3.85% dividend yield.  

Maybe there is such a thing as too many pubs

Another company that has been growing quickly, kicks off a nice yield and is trading at 10 times earnings but is still on my list to avoid is pub chain Greene King (LSE: GNK). This is because operating pubs is a tough, low-margin business that is becoming more difficult by the day due to governments seeing alcohol as an easy source of added tax revenue and, more importantly, shifting consumer consumption habits.

It’s no secret that pubs have fallen out of favour with young Britons as eye-wateringly high prices for a pint and a more health-conscious outlook has led them to increasingly avoid their local in favour of more upscale craft beers or spirits at home. For several years pub groups have got around this by increasing food offerings. But in a crowded market where it’s never hard to find a moderately priced burger and sweet potato fries, the likes of Greene King have found themselves in a highly competitive market with low barriers to entry.

These challenges coupled with mediocre at best consumer confidence figures are already taking a toll on it with group revenue down 1.2% year-on-year in the six months to October and underlying pre-tax profits down a whopping 8%. This is bad news for the company as its huge £2.2bn in debt is a full 4.2 times EBITDA. That’s not crazy for the property group it is, but does significantly constrain management’s ability to go out and invest heavily in updating the portfolio to more readily match changing consumer consumption habits.

With industry-wide problems mounting and already taking a toll on the group’s income statement, I’ll be steering well clear of Greene King in the New Year.

The post You may regret buying high-growth dividend stock Barratt Developments plc appeared first on The Twelfth Magpie.

More reading

• This beaten-down FTSE 100 dividend share just jumped 11% in a week but still yields almost 5%
• £1,000 buys 380 shares in this 5.4% yielding passive income stock
• Down 33% with a 5.6% dividend yield, is this FTSE 100 stock a once-in-a-decade buy?
• Why are these FTSE 100 growth and dividend stocks so cheap?
• Down 65% but yielding 6.7% – is this beaten-down UK stock now a generational bargain?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While I would certainly be taking seriously this opportunity to book profits if I had bought in at the bottom, there is reason to be optimistic over the medium term for Persimmon. The Conservative government’s emphasis on home ownership has seen the Help to Buy and Starter Homes schemes do their part to keep demand for new homes high. This demand has been largely unsatisfied as the smallest homebuilders haven’t recovered from the financial crisis and large homebuilders have expanded more slowly, leaving annual houses completed below pre-crisis levels.

Persimmon has leveraged this supply-demand imbalance to increase operating margins to 20.5% despite rising inputs costs. Impressive cash flow has allowed the company to return cash to shareholders through a dividend yielding 5.4% at current prices. Despite these strong financials, the risk of investing in a highly cyclical industry at current valuations won’t disappear, and long-term investors should only consider Persimmon if they believe the housing market will continue to hum along for years.

Much as Persimmon is a bet on continued growth in the domestic economy, Intercontinental Hotels Group (LSE: IHG) is a play on the health of the global economy, and the United States in particular. While IHG is globally diversified, the Americas provided more than 65% of operating profits in 2014.

Revenue per available room (RevPAR), a key industry metric, has grown in line with the positive growth in the US as business and leisure travellers alike have sent occupancy rates to record levels across the industry. IHG has taken advantage of ruddy health across the industry to divest most of its owned hotels at high valuations, leaving the company with over 85% of its hotels franchised. This model protects IHG from short-term market fluctuations, lowers capital requirements and has helped boost operating margins to just shy of 45%.

IHG was one of the first international brands to enter the Chinese market, which now provides 11% of operating profits, and remains the leader by room volume in so-called Tier 1 cities such as Shanghai and Beijing. The company has also moved aggressively into Tier 2 and 3 cities through mid-level brands, which has negatively affected the share price in the short term, but I believe remains a very good long-term play on the continued rise of the Chinese middle class.

The shares have dipped 16% since the start of the year, hit by overall market sentiment and exposure to China, and now trade at a reasonable 15 times earnings. After a 10% increase in dividends over the latest financial year, the shares now yield a modest 2.3% but are projected to increase by a further 10% this year. With economic growth in the US picking up and an attractive franchise model, I believe IHG shares should be on many investors’ watch list if they continue to be hit by the broader market sell-off.

The post Will Homebuilder Persimmon Plc Or InterContinental Hotels Group Plc Pay The Mortgage For Investors In 2016? appeared first on The Twelfth Magpie.

More reading

• Down 63% and yielding 6.3%! Is this FTSE 100 share a brilliant bargain?
• This 5.5%-yielding income stock’s at a 13-year low and cheap to-boot! Time to consider buying?
• Down 65% but yielding 6%! Is this FTSE 100 dividend stock an unmissable bargain?
• A 6.7% forecast yield and 53% below ‘fair value’! 1 stunning FTSE income stock for investors to consider today?
• How much do you need in an ISA to target a £2,066 monthly passive income in 2066

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

For the six months to the end of June, Persimmon’s profit-before-tax increased 31% to £273m. Revenue increased 11% to £1.3bn and underlying basic earnings per share jumped 43% to 78.6p. The number of homes sold by the company during the period increased 7% year-on-year to 6,855. The average selling price achieve by the company during the first six months of the year grew by 4% to £194,378. 

What’s more, alongside Persimmon’s impressive headline figures, the company reported an impressive improvement in all of its underlying business performance metrics. Return on capital employed — a key measure of profitability compared to assets — increased by a third to 27.5%, and free cash generated by Persimmon during the first six months of the year rose 57% to £191m. The company ended the half with a net cash balance of £278m. 

Still, despite Persimmon’s impressive set of performance figures, it is management’s outlook for the rest of the year that has really excited investors. 

Bright outlook

Persimmon’s chief executive Jeff Fairburn announced alongside today’s results that Persimmon sees a “good autumn selling season” ahead, and lenders are “increasingly competing for greater number of customers”, which is likely to fuel demand for housebuilding in the coming months. This is great news, not just for Persimmon but also for the likes of Bovis Homes (LSE: BVS), Berkeley (LSE: BKG) and Barratt Developments (LSE: BDEV). 

However, Bovis, Berkeley, Barratt Developments and Persimmon are all currently trading at or near 52-week and five-year highs, which could put some investors off. But with further housing market growth expected, these companies do not seem overpriced to me at present levels. 

Time to buy? 

City analysts currently expect Persimmon’s earnings per share to jump 17% this year, although these forecasts haven’t been adjusted to reflect today’s figures. Still, based on historic figures, Persimmon is currently trading at an undemanding forward P/E of 14.5.

Indeed, after factoring in Persimmon’s earnings growth rate of 17%, the company’s shares are trading at a PEG ratio of 0.8 implying that the shares offer growth at a reasonable price. Also, Persimmon’s shares are set to support a dividend yield of 4.7% this year. 

Similarly, Barratt and Bovis both trade at PEG ratios of less than 0.5. For example, Barratt’s earnings per share are set to jump 43% higher this year. The company currently trades at a forward P/E of 14.7 and offers a dividend yield of 3.8%. Bovis currently trades at a forward P/E of 11.9, a PEG ratio of 0.4 and supports a dividend yield of 3.4%. Unfortunately, Berkeley’s earnings per share are projected to fall slightly this year. Nevertheless, a rebound is expected during 2017. Analysts have pencilled in earnings growth of 54% for 2017, which puts Berkeley on a 2017 P/E of 9.2. 

And while City growth projections for these companies may seem optimistic, today’s statement from Persimmon’s management leads me to believe that these firms are likely to meet or even exceed forecasts. 

The post Persimmon plc’s Results Are Good News For Barratt Developments Plc, Berkeley Group Holdings PLC & Bovis Homes Group plc appeared first on The Twelfth Magpie.

More reading

• Down 63% and yielding 6.3%! Is this FTSE 100 share a brilliant bargain?
• This beaten-down FTSE 100 dividend share just jumped 11% in a week but still yields almost 5%
• Could Andy Burnham boost this beaten-up FTSE 250 stock that’s crashed 80% in 20 months?
• This 5.5%-yielding income stock’s at a 13-year low and cheap to-boot! Time to consider buying?
• Down 65% but yielding 6%! Is this FTSE 100 dividend stock an unmissable bargain?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.