In an article last week, I suggested three of master investor Neil Woodford’s top picks could be worth considering if you’re looking for ideas for your 2015 ISA. I’ve got three more for you today — namely, BT (LSE: BT-A) (NYSE: BT.US), Imperial Tobacco (LSE: IMT) and Spire Healthcare (LSE: SPI).
BT
BT — the fifth-largest holding of the CF Woodford Equity Income Fund — is the only major telecommunications or pay-TV firm Woodford is invested in. BT’s forecast P/E of 15 compares favourably with Vodafone (37), TalkTalk (37) and Sky (19).
Woodford and his team thought long and hard about BT’s upcoming £12.5bn takeover of leading UK mobile network operator EE. Ultimately, they decided it made good sense for BT to exploit “the opportunity to become dominant in taking the ‘quad-play’ fight (broadband, fixed line telephony, pay TV and mobile) to the competition”.
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Despite the short-term needs of new debt financing and an equity placing to complete the deal, Woodford and his team are confident “free cash flow prospects should ultimately be far more robust from the enlarged entity”.
Imperial Tobacco
In contrast to his BT bet, Woodford has multiple-company exposure to the tobacco sector, with three firms within his top 10 holdings. The most heavily weighted of these companies is Imperial Tobacco at number two in the portfolio.
Imperial’s current forecast P/E of 16 compares favourably with the ratings of British American Tobacco and Reynolds American, which both trade on a P/E of 18. Imperial also offers a superior dividend yield at 4.4%.
Talk of tobacco companies being litigated or regulated out of business is as old as the hills. However, Woodford has long believed in their resilience and perennial undervaluation, and his team recently reminded investors that: “Over the last 25 years, the tobacco sector has an unsurpassed track record of delivering superior long-term total returns based on attractive starting yields and consistent, sustainable dividend growth”.
Spire Healthcare
FTSE 250-listed Spire Healthcare is Britain’s second-largest private hospital company. Spire has been built up from an initial package of 25 hospitals bought from international private healthcare group Bupa in 2007.
Spire joined the stock market last July, and the CF Woodford Equity Income Fund took 6% of the company’s shares in the initial public offering. By February this year, Woodford had upped the fund’s stake to over 10%.
Spire currently has 39 private hospitals and 12 clinics across England, Wales and Scotland. Half the company’s revenue comes from patients with private medical insurance, while the other half is divided between NHS (28%), self-pay (17%) and “other” (4%).
Spire trades on a P/E of 16 and looks well-positioned for steady long-term growth.
