It might surprise people to learn that the seven best performing stocks on the FTSE 100 have done better, since September 2023, than the Magnificent Seven.
Who’d have thought that an aerospace engineer, two investment firms, a retailer famous for selling knickers, a cardboard box maker, a builder and a bank could outperform the best that Silicon Valley has to offer?
Well, they have. Their share prices have increased by an average of 71%. The mean for the seven tech giants is 48%.
Stock
Share price performance since 18.9.23 (%)
Rolls-Royce Holdings
+122
Intermediate Capital Group
+77
Marks & Spencer
+67
DS Smith Group
+64
Persimmon
+62
3i Group
+57
NatWest Group
+48
Average
+71
Source: Trading View
Catching my eye
Of the UK seven, the one that I follow most closely is Persimmon (LSE:PSN). That’s because I own shares in the housebuilder. However, I have to admit, it hasn’t been my best investment.
There are signs that the housing market’s slowly starting to recover after the double whammy of the pandemic and soaring inflation caused by Russia’s invasion of Ukraine. Interest rates in the UK are starting to fall and mortgages are becoming more affordable.
But I’m still sitting on a large paper loss. And when I first purchased the stock, it was paying a dividend of 235p a share. This year, its payout’s expected to be 60p.
Those who bought after me are doing better. Its shares are up 62% since September 2023. Investors appear to think the worst is over.
That could be because the company expects to build 10,500 homes in 2024. However, although an improvement on 2023, it’s 28.6% below its 2019-2022 average of 14,712.
Encouragingly, the average selling price (ASP) of Persimmon’s properties for the first six months of 2024 is £263,288. That’s 22% higher than in 2019 — its record-breaking year when it made a profit before tax of £1.048bn.
Source: Persimmon website
Chalk and cheese
But the world is a different place now. Over the past couple of years, building cost inflation has decimated housebuilders’ margins. For example, in 2019, the company recorded a profit before tax per completion of around £66k. During the first half of 2024, it made just under £33k per house.
It’s going to take a long while for the company to recoup these additional costs by raising its ASP. At the moment, I suspect the market isn’t in a strong enough position to absorb much more of a price increase.
Shareholders (like me) will therefore have to accept a new reality. At least in the short term, margins are going to be significantly worse than they were. And even if completions return to their pre-pandemic levels, earnings are going to be lower than before.
Of course, there’s no guarantee the housing market will continue to recover. The UK economy’s struggling to grow and the government’s suggesting that October’s budget is going to be painful.
But the company has no debt on its balance sheet and owns 38,067 plots with detailed planning consent. With a huge factory due to be completed in 2025, it’s also looking to build more modular homes, which are quicker and cheaper to construct.
I have to admit that Persimmon and the Magnificent Seven are at opposite ends of the spectrum when it comes to technological innovation. But I reckon the housebuilder has more chance of doubling its profits over the next few years than any of the famous American seven.
How magnificent is that?
The post Is it time to look at the FTSE 100’s own ‘Magnificent 7’? appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
More reading
My favourite FTSE 100 dividend share is yielding only 3.6%. But I’m not selling!
Up 95% and 72% in a year! Is it too late to buy these explosive FTSE 100 shares?
Is this FTSE 250 construction giant set to soar on a new housebuilding boom?
3 reasons the Persimmon share price could keep rising
James Beard has positions in Persimmon Plc. The Motley Fool UK has recommended DS Smith and Rolls-Royce Plc. 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.
