There’s no denying that the housebuilding sector has had an excellent few years and Taylor Wimpey is no exception. Investors should acknowledge that it was the best performing stock in the FTSE 100 during 2015. The number of homes the company sold rose by 7% to 13,341 at an average price of £230,000. The group ended the year with a strong order book of £1.8bn which investors should note is up 27% and it also expects to report operating margin for the year of over 20%.

While the sector has seen strong gains, Taylor Wimpey’s management remain cautious and it will not increase the land bank more than needed. Some in the market have even expressed concern that the sector could be overvalued. However, we believe the longer term demand/supply imbalance is a bigger driving force for the sector and poses a buying opportunity for some investors who do not currently have exposure to the sector.

A number of house builders look good value on a number of metrics at present but Taylor Wimpey trades at relatively better valuation levels. Furthermore, there is a healthy cash balance which will be returned to shareholders through special dividends. Subsequently, we recommend Taylor Wimpey as a ‘buy’ for medium risk investors seeking capital growth as we believe revenues will be supported by strong demand and improving economic conditions.

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