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British American Tobacco plc (BATS), G4S plc (GFS), Serco Group plc (SRP): 3 Neil Woodford Low-P/E Shares

LONDON — Ace City investor Neil Woodford has thrashed the FTSE 100 over the past five, 10, and 15 years. Hence, I always keep an eye on his holdings for promising investment ideas.

Woodford is very selective in picking shares for his 20-billion-pound funds. Fewer than one in five of the U.K.’s top 100 companies earn a place in his market-beating portfolios.

The following three firms are all at a forward price-to-earnings (P/E) ratio of less than 11, compared with a market average of over 14:

Company Share Price (Pence) P/E
Wm. Morrison Supermarkets 263 10.1
Imperial Tobacco Group 2,346 10.7
G4S 245 10.9

Wm. Morrison Supermarkets
Forget Tesco PLC (LON:TSCO) and J Sainsbury plc (LON:SBRY)! If Woodford is right, Morrisons is the only U.K. supermarket worth holding.

A challenging consumer environment, which none of the supermarkets is expecting to end any time soon, has put the whole sector out of favor. Morrisons, at a share price of 263 pence, is currently more out of favor than its rivals.

On a forward 12-month basis, Morrisons is at a P/E of 10.1, compared with Tesco PLC (LON:TSCO) at 10.3 and J Sainsbury plc (LON:SBRY)’s at 11.2. Morrisons also offers the highest dividend income: 4.9%. City experts see no earnings progress from Morrisons (or Tesco) on an 18-month view, but patient, long-term investors may be happy to take Morrisons 4.9% yield, while waiting for more benign economic conditions to return.

Imperial Tobacco
Woodford has been a big fan of tobacco companies for as long as I can remember. At the moment, he’s particularly sweet on Imperial Tobacco.

The FTSE 100’s No. 2 cigarettes firm, whose key brands are Davidoff, Gauloises Blondes, West and JPS, has been suffering from weakness in parts of the EU and a couple of other territories. However, Woodford reckons this weakness is more than discounted in the low valuation of Imperial compared with its peers.

British American Tobacco PLC (ADR) (NYSEAMEX:BTI)

At a current price of 2,346 pence, Imperial is on a forward P/E of 10.7 and offers a prospective dividend income of 5.3%. To put that in perspective, rival British American Tobacco plc (LON:BATS) is on a P/E of 14.7 and yield of 4.3%.

G4S plc (LON:GFS)
Woodford has plowed more money into security firm G4S plc (LON:GFS) over the past year than into any other FTSE 100 company.

The fallout from G4S plc (LON:GFS) staffing blunder for last year’s Olympic Games continues to rumble on — the chief executive recently departed — and the company’s shares are currently trading near to their 52-week low.

At 245 pence, G4S plc (LON:GFS) is at a forward P/E of 10.9 — a markedly lower valuation than a couple of other Woodford favorites in the support services sector: Serco Group plc (LON:SRP), at a P/E of 13.1, and Capita, at 16.2. While G4S plc (LON:GFS)’s prospective dividend income of 3.9% is not as high as Morrisons’ or Imperial’s, the yield is superior to that of peers Serco Group plc (LON:SRP) and Capita, and to the FTSE average of 3.3%.

The article 3 Neil Woodford Low-P/E Shares originally appeared on

G.A. Chester owns no shares in mentioned in this article. The Motley Fool recommends and owns shares of Tesco.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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