Renowned fund manager Neil Woodford has been thrashing the market for a quarter of a century. Woodford is a very selective stockpicker. Hence, I always keep an eye on his holdings for promising investment ideas.
In an environment where many FTSE 100 firms have been struggling to deliver regular annual growth, BT Group (LSE: BT-A) (NYSE: BT.US), NEXT (LSE: NXT) and Capita (LSE: CPI) are three Woodford picks that have increased their earnings every year for the last five years — and are set to extend their records.
Capita
Outsourcer Capita has banged out strong earnings-per-share (EPS) growth year after year — and been highly rated by the market as a result.
However, the shares have been weak over the last couple of months, with some disappointments in Capita’s bid pipeline. Woodford has added to his stake in the company, continuing to view the long-term outlook for the shares “very positively”.
As it is, Capita says it’s on target to meet market expectations for this year. The consensus is for 8% EPS growth. At a share price of 1,060p the company is on a P/E of 16.5. While that’s above the market average, Capita has been more highly rated in the past.
NEXT
Retailer NEXT has been an earnings growth machine and Woodford has long been an admirer. He finally took the plunge and bought shares in the company for his new CF Woodford Equity Income fund during the summer.
Even the best investors can suffer unfortunate timing. NEXT suffered from the unusually warm weather through September and October, and lowered its profit guidance for the full year. Even so, the company still expects to deliver superb earnings-per-share (EPS) growth of between 10% and 16%.
Woodford was not deterred by the “weather-related blip” and added to his holding in NEXT on share price weakness. At today’s somewhat recovered price of 6,715p the P/E is around 16, based on EPS at the mid-point of the company’s guidance range.
BT
BT is another Woodford pick that has delivered strong annual earnings growth through the last five years. And this is also another one he added to on share price weakness during October.
In BT’s case, the share price weakness was more to do with the general market wobble at the time than with specific company trading news. Indeed, at the end of October BT reported Q3 results “slightly ahead of market expectations”.
Consensus EPS forecasts of mid-single digit growth are not as strong as expectations for Capita and NEXT, but this is reflected BT’s lower P/E: around 13 at a share price of 385p.
