I’m searching for the best cheap UK shares to buy for my stocks portfolio. Here’s one I think could be an exceptional buy following strong industry newsflow today.
Looking good
Key data streaming in from the British housing market shows that demand for homes continues to outstrip supply. So buying London’s quoted housebuilders could be a good idea in this climate.
However, another effective way to capitalise on these favourable conditions might be to invest in companies that manufacture building products.
This is why I think investing in Michelmersh Brick Holdings (LSE: MBH) could be a great idea.
The brilliant brickmakers
On Thursday, a couple of Michelmersh’s industry rivals released news that confirms how fertile the trading landscape is right now.
First up let’s look at Ibstock, a cheap UK share that I own. It said today that “demand in both the new build housing and RMI [repair, maintenance and improvement] markets remains robust”.
Indeed, it said that stronger clay brick volumes would help full-year profits beat its prior estimates.
Brickability Group also today upgraded its profits expectations following better-than-expected business in the last quarter. It noted that “the underlying long-term demand for UK housing remains robust” as does “demand for quality materials for the construction sector generally”.
The trend continues
Thursday’s excellent updates follow Michelmersh’s own strong trading statement of late March. Then the company said that it expected “positive end market fundamentals expected to continue” in housing, commercial and RMI sectors. It saw revenues rise 11.2% year-on-year in 2021.
Rising costs are a problem for the likes of Michelmersh as freight, energy and raw materials prices increase. This is a danger that both Brickability and Ibstock mentioned in Thursday’s updates.
Still, on balance, I think the potential benefits of me owning these stocks outweigh the risks.
Given the wealth of good omens it’s perhaps unsurprising that City analysts think Michelmersh’s profits will continue to soar. Current consensus is for the brickmaker to record a 39% increase in annual earnings in 2022. At recent prices of 123p per share this leaves Michelmersh stock looking dirt-cheap too.
A price-to-earnings growth (PEG) ratio below 1 suggests that a share could be undervalued by traders and investors. And right now Michelmersh trades on a valuation of just 0.4.
An excellent long-term buy
I won’t be fooled into thinking that Michelmersh is just a great buy for today, however. I expect demand for its bricks to remain robust as housebuilding rates rise.
The government has announced plans to “build at least a million more homes, of all tenures, over the next Parliament”. The scale of Britain’s homes shortage means that construction activity will need to remain robust well into the 2030s too.
