Should you sell everything and run for the hills when markets are in turmoil? Of course not! Some of your best long-term returns will come from buying when bearish sentiment pervades.
Still, selectivity may be wise when global economic growth is being downgraded. With this in mind, Ive been looking at the latest buys reported by ace fund manager Neil Woodfords equity income fund.
Big pharmaceuticals companies have long been core holdings in Woodfords funds. It is an industry he sees as fundamentally undervalued.
The performance of FTSE 100 giant GlaxoSmithKline has been frustratingly disappointing for some years, but Woodford maintains that the market is under-appreciating the groups HIV and consumer healthcare businesses, and that the sum of the parts is significantly greater than the whole.
As such, the fund has further increased its stake in Glaxo at attractive valuation levels. The company is expected to return to growth this year, and trades on 16 times forecast earnings with a running yield of 5.9%. I can see why Woodford has been keen to snap up more shares in this defensive blue-chip heavyweight.
Companies with exposure to the UK housing market have seen a strong recovery since the financial crisis. However, you wont find the likes of housebuilders Barratt, Persimmon and Taylor Wimpey, or property portals Rightmove and Zoopla in Woodfords portfolio. His favoured play on the sector is hybrid estate agency Purplebricks.
Woodford had been a major backer of Purplebricks when it was a private company, and upped his stake when it joined the stock market in December. His buying just before Christmas gave him ownership of 29.1% of the companys shares.
The attraction of the company to Woodford? Purplebricks already sells more properties than all the main online agents combined and its IPO is the latest step as it seeks to cement its leading position in the UK.
The placing price of the shares was 100p, but the January market turmoil has seen a fall to 73p, so you can buy today at a good discount to the price Woodford was willing to pay. This fast-growing company is expected to turn a profit for the first time in 2017, and currently trades on 22 times that years forecast earnings.
CityFibre is a designer, builder, owner, and operator of fibre optic infrastructure in UK towns and cities. Last month the company raised 80m in a placing to facilitate the 90m acquisition of certain national infrastructure assets of KCOM Group.
Woodford participated in the fundraising at 50p a share, attracted by an acquisition that expands CityFibres footprint to 36 cities and major towns, and which accelerates the companys growth plans. Woodford sits just behind another renowned investor Odey Asset Management at the head of the shareholder register with an 11.3% stake in the company.
With heavy capital expenditure, CityFibre isnt expected to make a bottom-line profit for some years. But if Woodford and Odey are right this small-cap company will grow to be worth considerably more than its current 155m valuation at 58.5p.
Looking for some great small cap shares? Our Chief Investment Advisor, Mark Rogers, has a special method for picking what he believes are the best small cap shares around. Read more here about Mark’s ideas for small cap shares with great potential.
G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.