Taylor Wimpey house front face

Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.

Although it is extremely difficult for any investor to look beyond the present economic difficulties – anaemic GDP growth, sticky inflation and elevated interest rates – history suggests that today’s woes will almost certainly prove to be temporary.

Indeed, investors often overlook the fact that the economy is cyclical. Just as booms do not endure, busts have never proved to be perpetual. Investors who are able to use the inherent peaks and troughs of the economy’s performance to their advantage are likely to benefit over the long run.

Today’s downbeat near-term economic outlook is extremely likely to give way to more upbeat conditions over the long run. That means buying high-quality companies at low prices could prove to be a shrewd move.

For example, FTSE 100 housebuilder Taylor Wimpey currently trades on a price-to-book ratio of around 0.9 after falling by 34pc over the past six months. This suggests it offers excellent value for money and, while the company could yet experience further difficulties in the short term, its operating environment is highly likely to materially improve over the coming years.

Inflation, for instance, is forecast to decline to the Bank of England’s 2pc target over the medium term. This should allow the central bank to further loosen monetary policy, making houses much more affordable for prospective buyers.

Alongside the positive impact on wage growth and economic expansion typically caused by monetary policy easing, this should prompt higher demand for new homes and an increasingly upbeat outlook for the firm’s bottom line.

Allied to this, the UK continues to have a chronic shortage of new homes. The most recent data shows that new housing starts in the year to September 2024 amounted to just over 124,000.

Although the Government is seeking to boost the number of new homes built in the UK, even a material rise is unlikely to keep pace with population growth. Indeed, the UK’s population is forecast to rise by 490,000 people per year between 2022 and 2032.

Taylor Wimpey is well placed to capitalise on an increasingly buoyant industry outlook via a land bank that consists of 79,000 plots. It also has the financial means to invest for long-term growth, while overcoming the present period of economic uncertainty. Its latest annual results, released in February, showed that its net cash position currently stands at roughly £565m.

Certainly, the firm’s broader financial performance remained disappointing amid a tough operating environment.

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A 2pc decline in completions, for example, contributed to a 3pc drop in revenue versus the prior year. And with its operating profit margin falling by 1.2 percentage points to 12.2pc, due in part to rising costs, the company’s earnings per share slumped by over 15pc year on year.

In the short run, a 6.7pc rise in the minimum wage and increasing employer National Insurance contributions could further weigh on the firm’s financial performance. So, too, could costs related to fire safety that amounted to an additional £69m provision during its latest financial year. Meanwhile, increases to stamp duty that took effect yesterday may further negatively affect the wider housebuilding industry in the near term.

Over the long-term, though, Taylor Wimpey continues to offer a favourable risk/reward opportunity. As well as scope for significant capital growth, a dividend yield of 8.7pc suggests it remains a highly attractive income prospect. And with it planning to pay annual dividends amounting to 7.5pc of net assets, or at least £250m, over the coming years, shareholder payouts should grow as the firm becomes increasingly profitable.

Yes, the company’s shares have proved to be a thorough disappointment since first being tipped in this column during October 2018. They have fallen by 32pc, thereby underperforming the FTSE 100 index by 51 percentage points. The share price has also declined by 29pc since being added to our income portfolio in June last year.

Questor, though, remains upbeat about Taylor Wimpey’s investment potential. It has the financial means and market position to capitalise on an improving industry outlook, with an eventual fall in inflation set to provide scope for monetary policy easing that boosts demand for new homes amid continued constrained supply.

Furthermore, the company trades on a low valuation that suggests investors have factored in its tough near-term outlook. As a result, it remains a worthwhile purchase on a long-term view.

Questor says: buy

Ticker: TW

Share price at close: 108.3p

Read the latest Questor column on telegraph.co.uk every weekday at 5am. Read Questor’s rules of investment before you follow our tips.

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