Macrology

I seem to recall that, about a year ago, Jim Rogers said that housing was dead, and probably wouldn’t pick up for another 5 years. My dad also said pretty much the same thing.

I plucked out 3 housebuilders at random: BDEV (Barratt Developments), BWY (Bellway), and BVS (Bovis Homes). Their performance over tha last year was BDEV +18.3%, BWY +8.4%, BVS + 8.7%. In the meantime, the Footsie is down 5.5% over the same period. So, if you bought on macro view, not on valuation, you missed the opportunity to outperform the index by at least 13%. A housebuilder like BVS (I don’t want to use BDEV because it is a more leveraged company) usually trades at a PBV of 1.04. It currently trades at a PBV of 0.84. There’s still some upside, and hopefully the NAV will improve as the housing market recovers, hopefully giving investors returns better than implied by a return to normal valuations. Returns On Equity are currently weak – for BVS, it’s a pitiful 3.2%. Contrast this with the 2002-2006 period, where ROE was more like 18.5%. I’d expect some kind of reversion to the mean.

It’s not all beer and skittles choosing bombed-out sectors, though. BARC (Barclays) is down 30.3% over 1 year, LLOY (Lloyds) is down 50.5%, and RBS (Royal Bank of Scotland) is down 44.8%.

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About mcturra2000

Computer programmer living in Scotland.
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