In This Article:
Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.
Although it is extremely difficult for any investor to look beyond the present economic difficulties – anaemic GDP growth, sticky inflation and elevated interest rates – history suggests that today’s woes will almost certainly prove to be temporary.
Indeed, investors often overlook the fact that the economy is cyclical. Just as booms do not endure, busts have never proved to be perpetual. Investors who are able to use the inherent peaks and troughs of the economy’s performance to their advantage are likely to benefit over the long run.
Today’s downbeat near-term economic outlook is extremely likely to give way to more upbeat conditions over the long run. That means buying high-quality companies at low prices could prove to be a shrewd move.
For example, FTSE 100 housebuilder Taylor Wimpey currently trades on a price-to-book ratio of around 0.9 after falling by 34pc over the past six months. This suggests it offers excellent value for money and, while the company could yet experience further difficulties in the short term, its operating environment is highly likely to materially improve over the coming years.
Inflation, for instance, is forecast to decline to the Bank of England’s 2pc target over the medium term. This should allow the central bank to further loosen monetary policy, making houses much more affordable for prospective buyers.
Alongside the positive impact on wage growth and economic expansion typically caused by monetary policy easing, this should prompt higher demand for new homes and an increasingly upbeat outlook for the firm’s bottom line.
Allied to this, the UK continues to have a chronic shortage of new homes. The most recent data shows that new housing starts in the year to September 2024 amounted to just over 124,000.
Although the Government is seeking to boost the number of new homes built in the UK, even a material rise is unlikely to keep pace with population growth. Indeed, the UK’s population is forecast to rise by 490,000 people per year between 2022 and 2032.
Taylor Wimpey is well placed to capitalise on an increasingly buoyant industry outlook via a land bank that consists of 79,000 plots. It also has the financial means to invest for long-term growth, while overcoming the present period of economic uncertainty. Its latest annual results, released in February, showed that its net cash position currently stands at roughly £565m.
Certainly, the firm’s broader financial performance remained disappointing amid a tough operating environment.