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3 Neil Woodford Low P/E Shares For 2015: BT Group plc, BAE Systems plc And Royal Mail PLC

Are you looking for undervalued blue chips for 2015? Look no further than the lowest P/E picks among the biggest holdings of renowned fund manager Neil Woodford.

Right now, Woodford favourites BT Group (LSE: BT-A) (NYSE: BT.US), BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) and Royal Mail (LSE: RMG) are trading on forward P/Es below the FTSE 100 long-term average of 14.

Company Recent share price P/E
BT Group 401p 13.6
BAE Systems 469p 12.1
Royal Mail 425p 13.3

BT Group

BT’s official sector designation as a ‘fixed line telecommunications’ company is looking increasingly inadequate. BT has not only burst into the pay TV sports market, but is also currently in exclusive negotiations with Deutsche Telekom and Orange to acquire their UK mobile business, EE, in a £12.5bn cash and shares deal.

Woodford supports BT’s strategic move, and his team relish the prospect of long-term earnings growth driven by the “opportunity to become dominant in taking the ‘quad-play’ fight (broadband, fixed line telephony, pay TV and mobile) to the competition”.

As things stand, BT, which is the CF Woodford Equity Income fund’s fifth-largest holding at the latest reckoning, trades on a P/E of 13.6. That looks attractive relative not just to the FTSE 100 long-term average, but also to the P/Es of Sky (16) and Vodafone (37).

BAE Systems

BAE Systems is another Woodford top 10 holding on a below-market-average P/E. Indeed, the defence group’s rating of 12.1 is the lowest among his biggest blue-chip bets.

When Woodford was adding to his stake in BAE back in August, the shares were trading in the region of 425p-450p, and he and his team saw the stock as “significantly below fair value”. The shares are a bit higher today, but the P/E still appears attractive.

Woodford takes a longer-term view of companies than many in the City, and is looking beyond the current subdued spending in BAE’s major US and UK defence markets.

Royal Mail

Woodford didn’t participate in Royal Mail’s flotation in 2013 when he was still at Invesco Perpetual, but has built a good-sized stake since the launch of his CF Woodford Equity Income fund.

He sees the postal services group as “fundamentally a very attractive, cash generative business”, and was particularly attracted by the potential for improving profit margins. The company’s half-year results in November implied progress on margins may take a bit longer than previously expected, but Woodford’s team said: “we remain confident in the long-term investment case and took the opportunity to add to the position”.

The shares still remain on a relatively attractive P/E of 13.3 at today’s share price of 425p.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.