Revealed: 1 of the FTSE 100’s best recovery stocks to consider
The FTSE 100‘s gaggle of housebuilder shares have disappointed in the year to date despite a slow improvement in trading conditions. Take Persimmon (LSE:PSN) for instance — its share price has dropped 6.8% since 1 January.
This isn’t perhaps surprising given the highly cyclical nature of these companies’ operations. With the UK economic outlook becoming gloomier, the market fears a fresh downturn in homebuyer appetite. Signs of rising inflation haven’t helped matters either by tempering expectations for interest rate cuts.
Yet I feel the market may be overly pessimistic about the risks to Persimmon and its peers. Buyer affordability continues to improve as a bloody competitive battle in the mortgage market intensifies. And with Britain’s economy struggling, the case for further sustained Bank of England rate reductions remains solid.
Strong performance
The country’s house-buyers are enjoying a mortgage rate sweet spot not seen for years. Most recent Moneyfacts data shows average rates on two- and five-year fixed rate mortgages dropped below 5%. This is the first time these products have been under this level since May 2023 and September 2022, respectively, a trend that continues to support healthy home sales data.
Fresh Office for National Statistics (ONS) research in the last week also showed house prices up a solid 3.7% in June.
There are a couple of reasons I like Persimmon shares as a way to capitalise on the steady market recovery. Average selling prices on its new-builds are approximately 20% lower than the UK average. This could make it more resilient in case of a prolonged economic downturn.
This underpinned solid trading in the first half of the year. Its revenues rose 12% and underling operating profit increased 13%, driven by a 4% rise in completions.
I also like the fact that — unlike its rivals — Persimmon manufactures large quantities of essential building materials like bricks, tiles, timber frames and wall panels. This helps protect its bottom line against the problem of rising materials costs.
Cheap based on expected growth…
Persimmon’s falling share price in 2025 means it trades on a forward price-to-earnings (P/E) ratio of 11.6 times. I don’t think this looks expensive given the ongoing resilience of the housing market and the sector’s strong long-term picture.
In fact, the earnings multiple drops sharply over the next two years to very attractive levels in my view (to 10.1 times and 8.8 times in 2026 and 2027, respectively). This reflects City optimism that the builder’s expected earnings rise of 4% for this year will accelerate to 14% and 16% in the following two years.
Underlining the company’s improving value, its price-to-earnings growth (PEG) sits drops below the value watermark of one over the period, at 0.7 for next year and 0.6 for 2027.
… and projected dividends
To add an extra sweetener, Persimmon’s shares also offer attractive value from an income perspective. Its dividend yield is 5.6% for 2025, comfortably above the 3.3% Footsie average
And this rises to 6% and 6.4% for the following two years.
Persimmon is a share that clearly has its risks. But for investors looking for solid recovery stocks, I think it deserves serious consideration. And especially at today’s rock-bottom price.
The post Revealed: 1 of the FTSE 100’s best recovery stocks to consider appeared first on The Motley Fool UK.
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Royston Wild has positions in Persimmon Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
