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.
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BTs 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 BTs 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 funds 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 is another Woodford top 10 holding on a below-market-average P/E. Indeed, the defence groups 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 BAEs major US and UK defence markets.
Woodford didnt participate in Royal Mails 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 companys half-year results in November implied progress on margins may take a bit longer than previously expected, but Woodfords 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 todays share price of 425p.
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