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Neil Woodford’s Latest Buys And Sells: Mega-Million-Pound Calls On British American Tobacco plc, Rolls-Royce Holding PLC and Reynolds American, Inc

It’s always useful to see which shares the experts are buying and selling — and Neil Woodford is as expert as they come.

Through his Invesco Perpetual Income and High Income funds, Woodford looks after £25 billion of client money. His Income fund has generated a superb 210% return over the last 10 years, compared with an average 124% return by his peers.

The latest half-year report for the Income fund has just been published, and there’s an added piquancy, because the trades Woodford reports preceded an announcement on 15 October that he would be leaving Invesco next April.

Not kicking the habit

Woodford has a longstanding love affair with the tobacco sector. Indeed, backing this industry when it was out of favour has proven to be one of Woodford’s best calls.

During the 1990s, many commentators were confidently predicting litigation would be the death knell for tobacco companies. This year, the obituary writers are out again, mourning an impending death from plain packaging, education and declining sales volumes.

Meanwhile, Woodford has been increasing his net exposure to tobacco, while also rotating his favoured stocks within the sector.

Woodford reduced his holding in Reynolds American (NYSE: RAI.US) by 13%, netting proceeds of £77m. My calculations suggest he sold at between $49 and $50 a share — depending on the exchange rate at the time — when the owner of such iconic brands as Camel and Pall Mall was trading on an historic price-to-earnings (P/E) ratio of around 18.

Meanwhile Woodford spent £78m on increasing his shareholding in British American Tobacco (LSE: BATS) (NYSE: BTI.US) by 16%, and a further £59m on upping his stake in Imperial Tobacco by 13%.

My sums say Woodford paid 3,511p a pop for his British American Tobacco shares (at an historic P/E of less than 17) and 2,262p a share in the case of Imperial Tobacco (at an historic P/E of less than 12).

At the time of writing, you can buy British American Tobacco at 3,206p (9% less than Woodford paid), while Imperial Tobacco’s shares have risen 2% to 2,300p.

Taking some profit on high fliers

Woodford’s biggest FTSE 100 sell during the period was Rolls-Royce (LSE: RR) (NASDAQOTH: RYCEY.US), a company whose shares have more than quadrupled since their bear-market low of 2009.

The sale netted Woodford proceeds of £23m, but was a relatively small 5% ‘top-slice’ of his holding. According to my calculations, he sold at 1,246p a share, with the historic P/E standing at a heady 21, and the dividend yield at 1.6%. Rolls-Royce’s shares are currently trading 4% lower at 1,200p.

Woodford’s second largest British blue-chip sell — raising £20m — was Reckitt Benckiser. The consumer goods group, which owns brands such as Cillit Bang and Air Wick, saw its shares rise strongly through the first half of the year.

Again, Woodford’s sale represented a relatively small top-slice (4% of the holding). My sums say he sold at 4,837p a share, with the historic P/E at 18. Reckitt Benckiser’s shares are currently trading a tad lower at 4,816p.

Buying 40% of a company

There wasn’t too much change in Woodford’s net exposure to healthcare — another of his favourite industries — and AstraZeneca and GlaxoSmithKline remain the fund’s top two holdings.

However, Woodford did buy a whopping 40% of a smaller company in the sector! In an interesting move, he participated in a £30m initial public offering (IPO) for AIM-market debutante NetScientific. The company, which is chaired by pharma industry veteran Sir Richard Sykes, a former chairman of GlaxoSmithKline, commercialises late-stage research from US and UK universities.

The companies in NetScientific’s portfolio include, WANDA, which has designed a wireless digital health system for the remote management of chronic diseases, and Vortex BioSciences, which is developing a novel technology for blood-based cancer diagnosis and monitoring.

Woodford bought NetScientific shares at 160p in the IPO; today, they’re trading at 135p.

Finally, let me say that, while Woodford manages billions in client money, here at the Motley Fool we believe the average private investor can certainly aspire to build a one-million-pound portfolio of their own.

To help Britain invest better, we've produced a free, no-nonsense wealth guide: "10 Steps To Making A Million In The Market".

To learn why reaching the magic million is not as far-fetched as it may sound, simply click here.

> G A Chester does not own any shares mentioned in this article. The Motley Fool has recommended shares in GlaxoSmithKline.