So far, 2023 has been a funny old year for the FTSE 100. On 16 February, the index hit a record intra-day peak of 8,047.06 points, but this high didn’t last long.
The London stock market duly fell back, repeatedly hitting the 7,200 level. As I write (after Thursday’s close on 9 November), the index stands at 7,456.84 — down 7.3% from its all-time high.
Beautiful bargains to be found?
As the Footsie has retreated, so too have many of its constituent shares. Indeed, over the past six months, two-thirds of FTSE 100 stocks have lost value. Price declines from these 67 fallers range from a mere 0.1% to a whopping 42.8%. Yikes.
Then again, as a value/dividend/income investor, I love looking for ‘fallen angels’ among the losers and laggards. However, it can be difficult to differentiate between these undervalued companies and those heading for future basket-case status.
This firm might be a hidden gem
While browsing through London’s losers, I came across one well-known name: Taylor Wimpey (LSE: TW).
This national housebuilder was created in 2007 from the merger of two big rivals, Taylor Woodrow and George Wimpey. The first firm dates back to 1921, while the second is even older, having been founded in 1880.
With house prices and sales tumbling in 2023, Taylor Wimpey’s shares have taken a beating. As I write, they trade at 118.4p, valuing this group at £4.2bn. It makes this business a comparative minnow among blue-chip businesses.
Here’s how its share price has performed over six different timescales:
| Five days | +5.5% |
| One month | +1.0% |
| Six months | -5.7% |
| 2023 to date | +16.5% |
| One year | +13.8% |
| Five years | -20.2% |
After periods of recent weakness, Taylor Wimpey shares have leapt 13.3% since their close on 23 October. The boost continued with a positive trading update released Thursday morning.
Why would I buy?
Frankly, 2022-23 has been a tough time to own shares in UK housebuilders. I speak from bitter experience, having lost 36% to date owning the stock of another FTSE 100 builder.
Even so, it seems to me that Taylor Wimpey shares could well notch up further gains, because I see them as undervalued against the wider market.
At present, the shares trade on a multiple of 7.5 times earnings, generating an earnings yield of 13.3%. This means that their hefty dividend yield of 8.1% a year is covered 1.7 times by earnings.
To be honest, these don’t look like the fundamentals of a failing business to me. Indeed, it could well be argued that this value share is firmly in bargain-basement territory.
Then again, UK consumers are struggling, thanks to higher interest rates, sky-high energy bills and the cost of living crisis. Alas, these headwinds are likely to weigh on the UK property market next year, as well as in this.
Even so, if I had some investable cash to spare, I’d take a modest punt on these cheap shares today. And while I waited for property prices and stock markets to rebound, I’d gladly bank Taylor Wimpey’s delightful dividends!
