I’ve been scouring the FTSE 250 for top bargains to buy as market volatility has continued. Recent bouts of heavy selling have pushed P/E ratios sharply lower and dividend yields through the roof.
It’s my belief that housing stocks in particular have been excessively sold off in recent weeks. It’s why I’ve been out dip buying shares in FTSE 100 builder Persimmon recently. And it’s why I reckon Vistry Group (LSE: VTY) is another top stock that value investors could consider.
This FTSE 250 housebuilder’s share price has sunk 31% since the beginning of the year. This means it currently trades on a forward P/E ratio of 5.8 times.
Vistry also gives a lot for income investors to shout about. Its dividend yields sit at an astronomical 8.8% and 9.2% for 2022 and 2023 respectively.
Interest rates to keep rising
The risks to the housebuilders have undoubtedly increased in 2022. Rising interest rates mean that mortgage borrowing costs are growing rapidly.
This couldn’t come at a worse time as inflation already takes a bit bite from household budgets. Worryingly the the Bank of England has suggested that rates could rise much more sharply too.
Deputy governor Sir Jon Cunliffe last week said that the Bank needed to act “forcefully” to ensure that high inflation doesn’t become “the new normal.” Consumer prices rose at new 40-year highs of 9.1% in May, latest data shows.
House prices hit new record
But while the potential risks from the Bank seem to be rising, the housing market is so far still going from strength to strength. Both property prices and sales of new-build properties continue to soar thanks to an ongoing shortage of housing supply.
According to Halifax, average house prices in the UK hit a new record of £294,845 in June. News of a fresh all-time peak wasn’t a surprise, but the rate of annual growth was. This hit 13% last month, the biggest jump since 2004.
Vistry hikes margin estimates
Vistry itself announced strong trading news on Friday to underline the strength of Britain’s housing market
The firm said that trading had “significantly” beaten expectations in the first half of the year. It said the average weekly private sales rate was up 11% year-on-year. Forward sales meanwhile were 16% higher.
Vistry added that adjusted gross margins would likely beat its previous forecast of 23% for the full year. It confirmed that profits were likely to hit the top end of expectations.
Risk versus reward
Yet despite the steady flow of encouraging news, companies like this continue to command rock-bottom valuations. I think this represents a great dip buying opportunity for savvy investors.
As I say, future Bank of England rate action pose a risk to firms like Vistry. But the dangers that these create to earnings forecasts are reflected in current P/E ratios that largely sit inside bargain-benchmark territory of 10 times and below.
And in the case of Vistry I think its 9%+ dividend yield makes it too good to miss.
