Neil Woodford’s Biggest Blue-Chip Winners Of The Past 12 Months: BT Group plc, BAE Systems PLC And Rolls-Royce Holding PLC

Ace investor Neil Woodford has trounced the market for more than a quarter of a century. The City wizard chooses stocks sparingly; in fact, fewer than one in five FTSE 100 companies are deemed worthy of a place in his funds.

Such selectivity means it’s always interesting to look at Woodford’s picks. BT Group (LSE: BT-A) (NYSE: BT.US), BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) and Rolls-Royce (LSE: RR) are his blue-chip bets that have delivered the biggest returns over the past 12 months — all well ahead of the Footsie’s rise of 12%. Are Woodford’s winners still good value today?

BT Group

The UK’s fixed-line telecoms giant has expanded into broadband and television to provide the ‘bundled’ services that have become popular with consumers these days. BT’s shares are up 47% over the past 12 months. On top of that, Woodford and other shareholders have seen their dividend income swell by 14% during the period.

Last month, BT reported earnings-per-share (EPS) growth of 5% for this year’s first quarter. Despite the Q1 increase, analysts are forecasting flat earnings for the full year — but then double-digit growth for the year after. Meanwhile, dividend growth is expected to continue bombing along at 14% a year.

Despite the big rise in the shares to their current level of 326p, BT’s forward price-to-earnings (P/E) ratio of 12.8 remains on the value side of the market average of 16, while the prospective dividend yield of 3.4% is modestly higher than the market’s 3.1%.

BAE Systems

The defence and aerospace company continues to suffer from reductions in US defence budgets. Nevertheless, the market seems to think the worst is over and to have been encouraged by prospects beyond the US and UK. The shares have risen 40% over the past 12 months.

BAE announced its half-year results last week, reporting a first-half EPS decline of 4%. However, this was due to deferred recognition of sales and profit relating to the formalisation of price escalation on a major programme. BAE upped its guidance for the full year to “double-digit growth” in EPS, assuming a satisfactory conclusion to negotiations on the price escalation during the second half.

Despite the big rise in the shares to their current level of 439p, BAE’s forward P/E of 10.3 remains firmly in value territory relative to the wider market, while the prospective dividend yield of 4.5% is well above the market average.


A bit of a theme, then, among Woodford’s big winners, with BAE’s defence and aerospace peer, Rolls-Royce, also posting an outsize 12-month return: 39%. Rolls-Royce recently announced impressive half-year results, showing sales and EPS increasing 27% and the order book up 15%.

However, in contrast to BAE (and BT), Rolls-Royce is currently expensively-rated relative to the market on P/E and yield. At a share price of 1,185p, Rolls-Royce’s P/E is 17.7, while the income on offer is a measly 1.8%.

Finally, I can tell you that two of these big winners are analysed in the Motley Fool’s newly-updated Neil Woodford report. In fact, eight of the maestro’s current favourite blue chips are discussed, as well as his successful approach to investing.

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> G A Chester does not own any shares mentioned in this article.