The Investment Column: Persimmon can build on its strong foundations

Our view: Buy

Share price: 1190p (-13p)

Unlike the houses it sells, Persimmon shares are now 20 per cent cheaper than at the beginning of the year. However, first-half sales were better than expected at £1.5bn and it also revealed a significant improvement in margins, to 20.5 per cent from 19.9 per cent a year ago, following synergies from the purchase of the rival builder Westbury.

The falling share price is down to one factor alone - investors have assumed a rising interest rate environment can only mean bad news for housebuilders.

Persimmon itself said yesterday it was relaxed about rising interest rates. And with good reason - despite the four increases we've had since last August, there's been no house price crash. Instead the market has stabilised.

Nor is there necessarily bad news on the horizon from the inquiry into the housebuilding industry announced by the Office of Fair Trading last week.

True, the regulator will investigate whether companies such as Persimmon are sitting on banks of land longer than necessary, in the hope that they will be worth more when they are finally developed. But equally, the OFT inquiry will also probe planning delays - a perennial cause of complaint for housebuilders, who say red tape prevents them building new homes more quickly.

Economists believe building 200,000 new homes each year is the minimum necessary to satisfy demand, but the UK has repeatedly failed to hit that target.

Given the imbalance of demand and supply, Persimmon's strong position in the housebuilding market and its cheap valuation - 7.7 times forward earnings looks attractive - the shares would be worth a look, even without the generous yield of 4.4 per cent.

Not many stocks are built on such solid foundations, and the current weak share price is an excellent buying opportunity.

Amec

Our view: Hold

Share price: 563p (-3.5p)

It has been a red-letter year for investors in the support services group Amec - the shares have almost doubled from an August 2006 low of 271p, buoyed by operational improvements, non-core asset sales and the usual slug of bid speculation.

Amec makes its money managing construction and development projects, and the company is on the verge of completing a major overhaul of its operations. Yesterday's trading statement confirmed the progress the Step Change programme has delivered and the company now expects £10m of extra cost savings in the current year.

Amec is involved in a wide range of projects, but is concentrating its efforts in natural resources and energy, and the company is set to move into the oil services sector. Its clients read like a who's who of blue-chip names, including BP, Shell, ExxonMobil and BNFL.

One thing Amec is not short of is cash. Currently, it has £300m burning a hole in its pocket and the disposal programme is likely to mean at least another £200m on top of that before the end of the year. Investors could well be in line for a decent special dividend or a significant buyback, and two outstanding litigation cases have also been settled.

In spite of yesterday's bullish update, the stock trades on a demanding forward multiple of 24.1 times 2007 earnings, according to the broker Citigroup. Although a move into the oil services sector could mean that Amec gets a re-rating, its current valuation makes it among the most expensive in that sector.

A bid is unlikely while there is more work to do on the Step Change programme and, although management is clearly delivering on its promises, the good news looks priced in at the moment. Not one to sell, but not one to chase higher either.

Majestic Wine

Our view: Buy

Share price: 380p (Unchanged)

Majestic Wine is making retail look easy, developing a strong brand name and reliable business model, despite stiff competition from food retail giants.

Full-year results from Majestic's 136 warehouses came in just ahead of consensus forecasts, with the company reporting £16.2m of full year pre-tax profits, up 14.1 per cent from the previous year. Revenue rose 11 per cent to £191m.

However, Majestic's success isn't just built on cheap plonk. On the contrary, consumers are spending more than ever on quality wines, where sales grew by 25 per cent. Majestic expects to increase the number of stores with dedicated fine-wine display areas from 28 to 40 by the end of the year, and, despite what investors read about tightening purse strings, customers at Majestic are now spending a whopping £123 per visit.

Majestic deservedly trades at a premium - the stock is on a forward multiple of 22 times earnings. However, it could buy back up to 10 per cent of its own stock this year and the dividend, while still not enough to make the stock attractive on its own, is up by 24 per cent.

Quality stocks, like quality wines, cost money. Majestic has proven its model works, as does investment in staff education. For investors looking for a well-managed, debt-free, cash-generative business with solid growth prospects, this is one vintage that should improve markedly with age.