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There are some UK stocks that I would avoid like the plague right now due to macroeconomic and geopolitical issues.
However, some look like potentially interesting opportunities. One option I want to explore further is Michelmersh Brick Holdings (LSE:MBH). Should I buy or avoid stocks?
Let's take a closer look.
Safe like houses?
As the name suggests, the company manufactures and sells bricks, tiles and other building materials from its own landfill site in Telford.
The real estate market has been a bit sick lately due to economic pressures, so I understand there is some short-term risk. However, as a long-term investor, my interest is mainly in the long-term prospects.
It's worth noting that Michelmersh shares are up 9% over a 12-month period from 92p this time last year to current levels of 101p. It is pleasant to see this increase, despite the complicated economic outlook of recent months.
To buy or not to buy?
Let's break down the bull and bear case to help me make a decision on the stock.
Starting with the advantages, I like how Michelmersh looks as a company, its current fundamentals and the market in which it operates.
From a fundamental point of view, the business looks solid, with a healthy balance sheet and the valuation looks attractive. The stock currently trades with a price-to-earnings ratio of just over nine. Furthermore, a dividend yield of 4.5% is attractive. However, I understand that dividends are never guaranteed.
Digging deeper into the market, despite the current issues on my mind (more on this later), there is potential for growth. A big part of this is the property imbalance in the UK. As demand is outstripping supply, future projects to fill this gap mean brick makers could receive a windfall. Additionally, Michelmersh's in-house manufacturing could allow it to maximize margins. In turn, this could boost profitability and returns.
Turning to the other side of the coin, high interest rates and rampant inflation have hurt home construction and sales. Naturally, this has led to a drop in demand for bricks, which has hurt sales and performance.
My biggest concern is that this turbulence could continue for some time. There is no guarantee when interest rates and inflation can be curbed. Michelmersh could face tough times ahead. I will be following the company's updates with interest.
my verdict
Taking everything into account, I think Michelmersh is a stock that could definitely help me grow my wealth and holdings. Despite the current risks mentioned, there is exciting growth potential ahead. Plus, with solid fundamentals and a passive income opportunity on offer, I'm sold.
I would gladly buy some shares the next time I have some cash to invest. With the long-term future of the UK property market requiring close attention, Michelmersh could cash in.
