A search for value in the master investor's market-beating funds.
Ace City investor Neil Woodford has thrashed the FTSE 100 (UKX) over the last five, 10 and 15 years. Hence, I always keep an eye on his holdings for promising investment ideas.
Woodford is very, very selective in picking shares for his £20 billion funds. As few as one in 10 of the UK's top 350 companies earn a place in his market-beating portfolios.
The following five companies are all on current-year forecast price-to-earnings (P/E) ratios below the market average, and are ranked cheapest first:
Daisy Group is a provider of phone, broadband and mobile solutions to SMEs (small and medium-sized enterprises). This is an AIM-listed firm -- one of the bigger ones with a market capitalisation of £263 million -- and is Woodford's largest AIM holding (excluding investment companies). Woodford holds Daisy in his Invesco Perpetual Income and High Income funds, as well as in the Edinburgh Investment Trust (LSE: EDIN) he manages. Invesco increased its stake in Daisy to over 26% as recently as last month, the current value of the shareholding being £69 million. Analysts' are forecasting underlying earnings per share (eps) to rise 7% in the current year.
Big pharma group AstraZeneca has an aggregate weighting of over 8% in Woodford's funds making it his largest holding. The company's revenues remain under pressure from expiring patents but recent newsflow has been pretty positive. A new chief executive has a strong record of innovation and deal-making, and Astra's recent successful $2 billion bond issue should give him some firepower. The company has also recently announced a deal on one of its drugs with US group Pfizer, which will increase Astra's eps for 2012 by about $0.16. As a result, the company has upped its guidance on eps for the year to $6.00 to $6.30. The current analysts' eps consensus -- in sterling -- is 368p, which is at the bottom of the range at today's exchange rate. So, if Astra's earnings prove to be higher in the range, the P/E in the table above would be even lower.
Blue-chip telecommunications group BT is a top five holding in Woodford's funds with an aggregate weighting of around 5%. In July, the company reported double-digit eps growth for its first quarter, putting it well on track to meet analysts' expectations of 5% earnings growth for the current year.
Woodford's Invesco group was an aggressive buyer of shares in Homeserve in July and August, taking its stake from 23% to over 29%. The FTSE 250 company, which supplies emergency plumbing and electricity services, released a trading statement this week saying the outlook for its full year remains unchanged. Analysts are expecting a 15% earnings drop, as the company pays the price for an aggressive sales and marketing scandal.
Woodford has been generally bearish on utilities in recent years, believing that regulators are making returns unattractive for shareholders. However, he does hold Drax Group, the owner and operator of coal-fired power plant Drax Power Station, which has ambitions to become a predominantly biomass-fuelled generator. This FTSE 250 firm's earnings tend to be quite lumpy, but its P/E is lower than Woodford's other two big utilities: SSE (LSE: SSE) and Centrica (LSE: CNA).
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Further investment opportunities:
> G A Chester does not own shares in any of the companies mentioned in this article.