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Sticking with UK Stickbuilders

Launched: May 5, 2015, Updated July 17, 2015



If the housing market is getting hot in the US   as today's strong housing starts and permits attest it's blistering in the UK. House prices are soaring   especially around London   while mortgages are the cheapest on record. As today's Daily Intelligence Briefing details, housing construction is running around 40% below what is needed, leaving the stock of houses for sale at the lowest in decades.

MRP recommended a long position on UK homebuilders on May 5, 2015, just before the parliamentary elections: "If there is one thing that all the politicians can agree on, it is that the UK needs more housing." The Conservatives won with an unexpected majority and are now following through with a slew of policies to further promote housing construction, including a speedier approval process by local authorities. 

As a group, UK homebuilders have already rallied sharply both in absolute terms (first chart on top) and against the broader UK stock market (the chart just below that). Valuations have moved up as price gains outpace earnings estimates (the third chart in the top row). Rather than boost their earnings forecasts, however, the analysts have been reducing their aggregate ratings on the stocks (the third chart in the bottom row). Given the powerful fundamental backdrop of pent-up demand, cheap financing, and ever more government policies designed to boost home ownership, MRP affirms the recommendation for a long position on the UK homebuilders.



Last updated July 17, 2015
 

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Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners

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