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I bought Taylor Wimpey (LSE: TW) shares twice in September as they combine a high yield with strong bounce-back potential. I’m keen to buy more but may have to sell something to raise the cash. How about FTSE 100 underperformer Unilever (LSE: ULVR)?
It may seem odd that I want to buy more Taylor Wimpey shares, given I’m down 4.68% so far. My timing clearly isn’t good as the stock is up 22.38% over 12 months. But I think there’s a real opportunity here.
Housebuilders have been hammered by rising interest rates and falling property prices, which have squeezed margins and hit order books. Build inflation costs only added to the squeeze.
Tough choices
The pain isn’t over yet, despite last week’s base rate freeze, the second in a row. Mortgage rates may have declined slightly, but they’re still a lot higher than they were. The Bank of England has warned the first rate cut may not land until the second half of next year, so the pain could drag on.
Taylor Wimpey offers a terrific yield of 8.22%, but that’s hardly a sign of success. Nor is its dirt-cheap P/E of just 6.08%. First-half revenues fell 21.2% to £1.64bn, with pre-tax profit crashing 28.9% to £237.5m.
It still boasts a £2.1bn order book as well as a “robust balance sheet and excellent land bank”. Plus it’s sitting on net cash off £654.9m, up slightly on last year. That should help it muddle through today’s tough period.
The dividend looks sustainable for now and the board is sticking by its policy of returning 7.5% of net assets annually. Given the UK’s desperate need for housing, I expect Taylor Wimpey to battle through. I’d like to up my stake while it’s cheap.
Down, but not out
So what about Unilever? My shares are down 5.32% since I bought them in June. Over 12 months, the stock is down 3.53%. The difference with Taylor Wimpey is that Marmite, Dove and Ben & Jerry’s maker Unilever is largely the architect of its own misfortunes. Price rises have protected margins but deterred some consumers. And analysts have said it hasn’t invested enough in its key brands. Its focus on finding a social or environmental purpose for its brands may also have been an issue for some, although others have applauded it.
New CEO Hein Schumacher has started shaking things up with a focus on its star brands. There will be “no major or transformational acquisitions”, as the company is still smarting from last year’s doomed £50bn bid for GlaxoSmithKline’s consumer healthcare division. That sounds sensible to me. Unilever needs to stick to its knitting now.
Major shareholders remain suspicious and understandably so. I remember the days when its share price rose year after year. Now it’s down 6.23% over five years.
Unilever is cheap by its standards trading at 17.29 times earnings while yielding 3.53%. So should I sell? My answer is no. I bought it as a recovery play, and now I have to give it time. Chopping and changing is poor policy and racks up trading fees too. If I want to buy more Taylor Wimpey shares – and I do – I’ll have to find the money elsewhere.
