Berkeley Group and Burberry Group: are the shares cheap enough to buy in May?

Berkeley Group and Burberry Group shares have had a difficult year so far. Could long-term investors find value in either battered stock?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Covid-19 news continues to dominate the headlines with many countries also focusing on potential economic recovery in the second half of the year. Today I’m taking a look at the share prices of London-focused housebuilder Berkeley Group (LSE: BKG) and luxury fashion house Burberry Group (LSE:BRBY) to see how £1,000 invested in each would have fared over the past five years and whether one or both might offer a path to riches in the years to come. 

Both companies are members of the FTSE 100 index. Year-to-date (YTD), the stocks are down about 14% and 39% respectively. Buying stocks during a market correction requires courage. Let’s see if either one may deserve to be in a long-term portfolio.

Reading the numbers

Under each company name below, you can see how the price has changed over the past five years and what this means in terms of the compound annual growth rate (CAGR). Then I’ve shown how £1,000 would have fared over five years.

Past share prices are for early May 2015. Current ones are closing prices on 6 May. I haven’t factored-in any brokerage commissions or taxes.

Please note that both FTSE 100 firms pay regular dividends. The calculation below doesn’t take into consideration the dividends or reinvesting that income.

Berkeley Group

The share price has increased from 2,737p to 4,198p, although on 2 January 2020, BKG shares were around 4,948p. It means CAGR of 8.93%, so £1,000 would have increased to about £1,534.

The current dividend yield stands at 2.8% and the shares are expected to go ex-dividend in August. Unlike a large number of FTSE companies, including its homebuilding peers, Berkeley Group has maintained its dividend.

It has a robust balance sheet with over £1bn in net cash. It is trading at 10.5 times current earnings, although this rises to 11.7 times forecast earnings.

I would not necessarily call the BKG share price a bargain yet, especially given the uncertainty due to the economic effects of the pandemic.

Although I am relatively optimistic on the housebuilders after 2021, there is clearly a bumpy road ahead now. But I would consider buying the dips.

Burberry Group

The share price has fallen from 1,780p to 1,335p, but on 2 January, BRBY shares were around 2,201p. That’s a CAGR of -5.59% and means £1,000 would have decreased to £750.

Burberry shares are around multi-year lows. So does the current price mean value?

Even before the coronavirus outbreak, the group had a choppy several years, swinging in and out of favour with investors. And the luxury goods leader was one of the FTSE 100 companies to be adversely affected by the pandemic as demand fell in mainland China and Hong Kong as early as January.

The Asia-Pacific region accounts for over 40% of Burberry’s revenue. However, a mid-March press release from the group highlighted that the adverse effect of the Covid-19 pandemic on the business has now become global.

On a more positive note, passive income seekers can still rely on the British heritage brand. Its current dividend yield stands at 3.2% and the shares are expected to go ex-dividend in late June.

Would I buy now? No. In case of further global economic contraction, consumer incomes and demand for luxury goods will likely fall. I would like to revisit the outlook for the stock on 22 May when it releases preliminary results for FY 2020, the year that ended on 28 March, as that will include a pandemic-affected period.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »