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.
The following three firms are all currently on forward price-to-earnings (P/E) ratios of less than 12, compared with the FTSE 100 long-term average of 14:
|Company||Recent share price||P/E|
|BAE Systems (LSE: BA)||460p||11.9|
|Royal Mail (LSE: RMG)||418p||11.8|
|Game Digital (LSE: GMD)||277p||11.3|
Woodford has recently been adding to his stake in BAE Systems, after exiting his position in HSBC due to concerns about what he called fine inflation in the banking industry.
BAE Systems is one of a number of stocks Woodford currently sees as significantly below fair value. And on a P/E of 11.9 its hard to disagree with his view.
Sure, the defence group is currently suffering from constrained spending in its traditional UK and US markets earnings are expected to fall about 10% this year but Woodford has his eye on the big picture. Defence spending is only going to rise in the longer term.
Woodford didnt buy into Royal Mails flotation on the stock market last year. The flotation came in the period between announcing his departure from asset manager Invesco Perpetual and the launch of his new CF Woodford Equity Income fund.
However, hes now built a stake in the postal services group, which he describes as fundamentally a very attractive, cash generative business. Should such a business be trading at a higher P/E than the current 11.8? Woodford clearly thinks so.
Royal Mail had mixed news for shareholders at the companys AGM in July: letters were better than expected, parcels weaker, but overall the chief executive said she anticipates the group meeting full-year expectations.
Computer games retailer Game Digital, successor to the chain that collapsed into administration two years ago, returned to the stock market in June. The much-changed business is the leading games retailer in the UK and Spain.
Woodford has backed the revamped group. And it says something that Game Digital is the only retailer, apart from fashion giant NEXT, that he holds within his fund. A P/E of 11.3 doesnt look too demanding for a market leader in its sector.
Game Digital told us in a trading update last month that everythings on track, and earlier this week announced a strengthening of its position is Spain with an agreement in principal to take over a portfolio of stores from US group GameStop Corp. which is exiting the Spanish market.
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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.