Britain’s housebuilders can expect another decade of big profits as the market’s colossal supply/demand imbalance drags on. A shortage of new homes isn’t confined to this country, of course. It’s the same in Ireland, which is why I’m considering buying penny stock Cairn Homes (LSE: CRN) today.
Cairn recently reported that its revenues rocketed 61% in the six months to June, while its order book leapt to €655m from €214m at the start of 2021. Encouragingly, evidence shows that buyer demand has remained electrifying since then too. Average property prices in Ireland soared 12.4% in the 12 months to September, according to the country’s Central Statistics Office. This was also up from 10.9% in the previous month.
Big margins at Cairn Homes are also helping to drive profits right now (it expects a gross margin of 19% in 2021). However, I am aware that margins could start to recede if supply chain issues mean building material costs keep surging, hitting shareholder returns in the process.
Another housing hero
I think investing in Triple Point Social Housing REIT (LSE: SOHO) could be a good way to insulate myself against the danger posed by Omicron. After all, demand for the accommodation it provides (to people with special needs) remains stable during good times and bad. The business collected 100% of rents even as the Covid-19 crisis savaged the British economy.
Security isn’t the only reason I like Triple Point Social Housing. I also like the steps it’s taking to boost its property portfolio, the company adding a raft of new assets to its books for a shade under £30m last month. Such action will allow it to capitalise on the fast-growing specialised supported housing (SSH) sector to full effect.
Finally, I like Triple Point’s classification as a real estate investment trust (REIT). This ensures it has to pay a minimum of 90% annual profits out by way of shareholder dividends. I’d buy the business despite the danger of overpaying for acquired assets which fail to deliver the desired rewards.
An electric vehicle penny stock
TI Fluid Systems is a UK share I bought last year to latch onto the electric vehicle revolution. And I’m thinking of investing in European Metals Holdings (LSE: EMH), which operates the massive Cinovec lithium project in Czechia. Most plug-in hybrid and battery-powered cars contain lithium-ion batteries, meaning European Metals can expect sales of its product to soar.
I’m also a fan of this company because it’s located slap bang in the middle of Europe’s carbuilding belt, making it simpler to sell its product to major manufacturers. Pleasingly, sales of low-carbon vehicles are booming in Europe. According to ING Bank, new registrations leapt 41% in the five years to 2020, beating the US and its figure of 28% by a wide margin.
The European Metals share price could suffer if development of Cinovec hits trouble, of course. However, all things considered, I think the reward-to-risk profile of this penny stock is highly attractive.
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Royston Wild owns shares of TI Fluid Systems. 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.