For me, the FTSE is the most attractive index to invest in. Valuations are low and yields are high. So here are two companies I’m looking closely at.
With the exception of FTSE 100 mining and oil stocks, UK-listed shares are largely down this year. There has been a cocktail of negative pressures, from inflation to recession forecasts. But investing is about looking at where companies will be in the medium-to-long term. And that’s why I’m looking at investing in these two stocks now, before the market recovers.
Housebuilder stocks have been among the worst performers on the FTSE 100 and FTSE 250 this year. Persimmon (LSE:PSN) is one of the UK’s largest housebuilders but it has been less impacted than other developers by the cladding crisis that has pushed share prices in this sector down in 2022.
While some stocks will see the majority of their 2022 profits wiped out by their pledges to recladding thousands of homes, Persimmon anticipates spending £75m on recladding homes that were built using flammable material. That might sound like a lot, but it’s less than 10% of its pre-tax profits last year.
In a recent update, the firm disappointed investors as production delays meant that completions came in lower than expected during the first half of the year. Persimmon even reduced its volume guidance by 10% for the year. However, profits for the first half of the year still came in ahead of the same period in 2021, up 1%.
In July, the developer said it was around 75% forward sold for the full year. The average selling price of new homes forward sold to owner occupiers was £280,700, up 12%.
So the company is making more money from selling fewer units. And, personally, I have no problem with that. It’s also important to note that delayed completions will eventually contribute to revenue. These are not lost sales.
However, there are some concerns. Higher rates will likely push house prices down in the autumn, but the long-run prospects are positive. Persimmon is down 35% over 12 months and I’d buy more stock now before the share price moves upwards.
Synthomer (LSE:SYNT) shares tanked last week after the firm released an earnings update. Pre-tax profit fell to £114.7m from £272.4m in the same period a year earlier, but investors knew that this was coming eventually.
The company saw revenues soar during the pandemic as demand for latex gloves went off the chart. But this wasn’t going to last forever.
Despite the profits tanking, Synthomer’s management highlighted the positives, noting that all segments had grown apart from the elastomers arm and that revenues were up 8.6% to £1.33bn.
And I can see the positives too. There’s organic growth coming from three sectors, and the newly acquired adhesive technologies division added £18m in earnings.
The firm’s valuation also looks very cheap right now. Using last year’s earnings, the price-to-earnings (P/E) ratio is 2.5. But that’s not hugely reflective of its current performance. The forward P/E is around five, which is phenomenally cheap for a growing firm.
I already own Synthomer shares, but at current prices I’d buy more.
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
James Fox owns shares in Synthomer and Persimmon. The Motley Fool UK has recommended Synthomer. 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.
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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
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