3 Neil Woodford Core Picks For Your ISA: AstraZeneca plc, BT Group plc And British American Tobacco plc

Woodford core holdings AstraZeneca plc (LON:AZN), BT Group plc (LON:BT.A) and British American Tobacco plc (LON:BATS) could be great picks for your ISA.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Top fund manager Neil Woodford has long held a view towards the pessimistic end of the spectrum on the outlook for global growth. However, he continues to see value in some areas of the market. And the core holdings of his equity income fund are blue-chip companies that he believes can still deliver in a low-growth world.

If you’re looking for shares for your ISA, but are concerned about the state of the global economy and volatile stock markets, AstraZeneca (LSE: AZN), BT (LSE: BT-A) and British American Tobacco (LSE: BATS) — three Woodford core holdings — have a lot going for them.

Doing all the right things

You wouldn’t have AstraZeneca down as a great business, if you looked only at the decline in sales and earnings since 2011. You’d probably be more inclined to avoid this FTSE 100 drugs company like the plague.

In its 2015 annual results, released last month, AstraZeneca guided on a further “low to mid single-digit” decline in revenue and core earnings for 2016. With the shares currently changing hands for something under £40, AstraZeneca is trading on a forward price-to-earnings (P/E) ratio of 14.5, with a dividend yield of 4.8%. On the face of it, that looks pretty poor value for a company with such an uninspiring outlook.

However, Woodford is looking further into the future, and expects AstraZeneca’s performance to vindicate his support for the board’s decision to reject a £55 a share takeover bid from US group Pfizer two years ago.

As recently as yesterday, Mitchell Fraser-Jones — Woodford’s head of investment communications — said:

We had a meeting with Astra’s management just after the results and we continue to believe that they are doing all the right things to return the business to growth and create meaningful long-term shareholder value.”

Very strong dividend growth

BT’s earnings progression in recent years has been almost a mirror opposite to that of Astra. Woodford is supportive of BT’s recent £12.5bn takeover of Britain’s biggest mobile network company, EE, and is pleased with the group’s solid strategic progress and continued strengthening of its leading position in the UK broadband market.

BT’s financial year end is 31 March, and at a current share price of around £4.50 earnings forecasts put the company on a P/E of 14.6, with a dividend yield of 3.1%.

Stephen Lamacraft — a blue-chip specialist on Woodford’s team — said last week: “The shares aren’t as cheap as they were a few years ago but it continues to offer an attractive yield and the prospect of very strong dividend growth.”

Steady and sustainable growth

British American Tobacco (BAT) commands a higher earnings rating than AstraZeneca and BT. At a share price of around £40, the Footsie’s top tobacco company trades on a forward P/E of 17.6, with a prospective dividend yield of 4.1%.

Woodford has long considered tobacco companies to be under-appreciated by the market. As Lamacraft recently pointed out, the industry has a history of “delivering steady and sustainable growth in cash flows, earnings and dividends year in, year out, regardless of the economic environment”.

Woodford and his team also attribute value to what they believe is the strong position of BAT and its peers to be the winners in designing and commercialising e-cigarette and other next-generation products.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »