Was Neil Woodford right all along? This UK-facing cyclical share is up 10% today on good trading figures

This cyclical business is in good health. Time to buy?

| 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.

Previously outperforming British fund manager Neil Woodford has been getting a bit of stick over the past couple of years because his funds have been underperforming. For example, his Equity Income Fund aims to “offer investors capital growth and a growing income stream.”  However, its capital performance since inception in 2014 lags that of the FTSE All-Share Index and the fund’s dividend yield around 3.5% slightly lags the yield of the index, which runs close to 3.6%.

Better off in a tracker

If you account for the fees the fund will charge you, it seems clear that a simple, passive, low-cost index-tracking fund would have served you better over the period. Yet Neil Woodford has never been afraid to go against the crowd and is on record as saying that periods of underperformance are normal. He’s always bounced back before, and this time he seems to be employing the tactic of investing in what he sees as undervalued UK-facing cyclical firms to drive future performance.

He thinks that “unloved and undervalued” domestic companies are “are already pricing in an overly bleak scenario for the UK’s economic future.” In his September round-up mail, he said he is “convinced” that his funds operate “an appropriate strategy for the challenges that lie ahead.” Perhaps he’s right. Some of his investee companies are beginning to sprout up green shoots, such as Topps Tiles (LSE: TPT), which delivered a positive full-year trading update today and the shares rose more than 10%. There’s a chunk of the shares in the Woodford Income Focus Fund.

Profits moving up

The firm says it is the UK’s largest tile specialist and trades from 370 sites after a bit of nipping and tucking during the year. Two new stores were opened but six were closed, which suggests that the directors are cutting their losers. And most seasoned investors and traders know that’s the best way to score consistent positive returns overall. Indeed, the figures are encouraging. For the 52-week period to the end of September, the firm expects adjusted revenue to come in a little over 1.5% higher than the equivalent period last year. However, the like-for-like figure is flat, suggesting the business is at least holding its own despite the tough trading environment. There was a slight upturn in the final quarter with the like-for-like figure moving 1.2% higher.

The directors expect adjusted pre-tax profits for the period to come in “slightly ahead of the top end of the current range of market expectations.” My guess is that this positive statement is what excited the market today. But we are not out of the woods yet. Looking ahead, they said the “uncertainty in the UK economic outlook” is keeping them cautious.

After the well-reported string of plunging shares in his funds, Neil Woodford must be pleased to see this one going up. However, I’m still not persuaded that buying cyclical firms now is a good idea, and I’m not brave enough to pile into Topps Tiles for the time being.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »