A search for value among the investing legend's blue-chip Olympians.
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. Fewer than one in five of the UK's top 100 companies earn a place in his market-beating portfolios.
The following five companies are currently the cheapest of his blue-chip holdings based on forecast 12-month price-to-earnings (P/E) ratios. They are ranked cheapest first:
The defence contractor is not one of Woodford's largest holdings, but sneaks into the top 10 of his High Income fund with a weighting of 3.7%. The company has suffered from recent defence spending cutbacks in its major US and UK markets, and analysts are forecasting fairly flat revenues and profits between 2012 and 2013. However, investors buying today can expect to receive a dividend yield comfortably in excess of 6% while waiting for stronger earnings growth to return.
The drugs group has an aggregate weighting of over 8% in Woodford's funds, just pipping fellow pharma GlaxoSmithKline (LSE: GSK) to the top spot. AstraZeneca's revenues are under pressure from patents expiring on some of its major drugs, but the group is flush with cash to invest for the future and, like BAE, offers investors today a dividend yield of over 6%.
The UK's leading fixed-line telecoms group is a top five holding in Woodford's funds with an aggregate weighting of around 5%. Analysts are forecasting flattish revenues for the next year or two, but a modest advance in earnings. The dividend, which is well covered by earnings and gives a 3.7% trailing yield, is forecast to grow by double-digits in each of the next two years.
The security firm is currently all over the news on account of the debacle of its staffing shortfall for the Olympic Games. G4S is not one of Woodford's biggest holdings, but he's come out publicly in support of the group's under-fire boss, Nick Buckles. You don't achieve the level of market-beating returns Woodford has by only picking shares that will win a popularity poll among investors, and for that reason alone G4S could be worth a closer look.
The UK's fourth-largest supermarket sits outside Woodford's top 10 holdings with a weighting of a bit over 1.5%. Morrison's isn't the cheapest UK supermarket on P/E and it has the lowest dividend yield. However, it has higher forecast earnings and dividend growth than its rivals, and is the only supermarket Woodford deems worthy of holding.
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Further investment opportunities:
> G A Chester does not own shares in any of the companies mentioned in this article.