Still, it is one thing identifying a phenomenon, but understanding why this effect takes place each year needs some explaining. There are several factors at work, but the main one is the reporting season for housebuilders, which kicks in during late February and early March. As a result, we are guaranteed news flow from the leading players (and generally positive news at that) and, more importantly, the market focuses on the companies' outlook statements. Combine this with general media attention on the spring housing market (this is the time of year most of us prefer to move house), and the fact that housebuilders are perennially lowly rated on earnings multiples, (see 'Built on solid foundations', IC, 10 October 2003, page 46), and we have all the ingredients in place for a rerating.
Having picked the housebuilding sector as my standout pick in the stock market over the next six months, going long for the first quarter of 2004 has to be the call. Let's not forget that we already know that there is a very high probability that listed housebuilders will hit earnings forecasts next year, given their disclosed forward order books. We also know that there is a trend in the sector towards aggressive dividend growth, so yield attractions will be coming into play when the companies report their results early next year. If that is not appetising enough, then the issue of further consolidation will undoubtedly raise the stakes even higher. All in all, when the market takes a reality check, and overcomes it's short-term fixation with minute changes in mortgage interest rates, I expect the rerating of the sector - which started in March 2000 - to resume its upward curve.
* Readers who followed my advice six weeks ago to buy into small, private London bank Leopold Joseph (740p, 26 September 2003) are now sitting on a 21 per cent gain. The shares have since risen to 895p, taking them into the 850p-900p range that I expect a bid or break-up of the company to emerge at. Although there could be further upside to come, my target price has been reached, so I would recommend you bank this quick-fire profit.
* What a difference a year makes. Having advised readers to buy into Punch Taverns (235p, 25 October 2002), I had to admit that the pub group was proving a nightmare tenant five months later as the three-year bear market hit rock-bottom. But readers who followed my advice in March to hold on are now reaping the dividends, with the shares cruising past the 400p mark last week. The latest surge was prompted by the company's acquisition of tenanted pub group Pubmaster in a £1.2bn debt-funded deal (see results page 57). This will give an immediate uplift to Punch's earnings for the current financial year to August 2004 and, trading on a single-figure prospective PE multiple, there should be more upside to come.
| year | index high | date | index at 31 march |
|---|---|---|---|
| 1992 | 119.4 | 9 Mar | 107.5 |
| 1993 | 115.9 | 22 Mar | 113.3 |
| 1994 | 118.9 | 8 Feb | 96.0 |
| 1995 | 102.8 | 29 Mar | 102.7 |
| 1996 | 107.6 | 13 Mar | 105.1 |
| 1997 | 112.9 | 31 Jan | 105.9 |
| 1998 | 127.5 | 20 Mar | 121.5 |
| 1999 | 134.4 | 31 Mar | 134.5 |
| 2000 | 101.0 | 7 Jan | 83.8 |
| 2001 | 122.7 | 27 Feb | 114.8 |
| 2002 | 116.3 | 7 Mar | 112.0 |
| 2003 | 108.8 | 19 Feb | 100.4 |
Average quarterly return 115.7 108.1
Source: investors chronicle - Index reset to 100 on 1 January
Simon Thompson has been companies editor of the Investors Chronicle for three years and is a regular speaker at investment seminars on equity and market strategy
