One Neil Woodford stock I’d buy with £2k and one I’d sell today

Rupert Hargreaves looks at the stocks in Neil Woodford’s portfolio and highlights the one he likes best.

| 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.

Whenever I invest in a company, the first thing I always consider is the quality and track record of its management. And that’s why I would buy Neil Woodford favourite Non-Standard Finance (LSE: NSF), but sell Provident Financial (LSE: PFG). 

Backing management 

Non-Standard and Provident are both similar businesses. They provide short term high-cost credit to customers who might have been shut off from traditional lenders. 

For a long time, Provident was the leader in this field under the stewardship of former CEO John van Kuffeler. However, shortly after this transformational CEO left, the wheels started to come off. The new management tried to restructure the business by altering the way it collects outstanding credit. The result was chaos. Collections slumped from more than 70% to around 50%, and many employees left the business, taking their customers with them. Companies like Non-Standard benefitted from this exodus.

And now Non-Standard, which is led by none other than John van Kuffeler, is trying to capitalise on its rival’s problems. 

Unsolicited offer 

Non-Standard has made an unsolicited £1.3bn offer for the group, which is supported by shareholders on both sides. 

Neil Woodford and his former employer Invesco own the majority of both companies and they are pushing for the merger to go ahead. However, Provident is trying to de-rail van Kuffeler’s offer, and that’s why I’d sell Provident and invest £2k in Non-Standard today. 

Provident is several times larger than Non-Standard and, if the deal completes, it will leave the former’s shareholders owning the majority of the company. This isn’t the perfect outcome, but I think combining the two groups is the right decision. Van Kuffeler’s record shows that he knows how to run a business like Provident, and run it well, so I think he’s the best candidate for the job. 

On the other hand, Provident’s current management doesn’t seem to be cut out for the job. They’ve attacked Non-Standard’s offer, stating that it has “major strategic flaws, contains a number of misguided assumptions about the Provident business and includes future plans which we consider to be fraught with execution risk.”

Provident is also attacking Non-Standard’s share price performance. In a press release published today, Provident states “NSF’s share price has fallen on average 20% since its acquisitions and its share price has fallen 30% since it announced the issuance of new shares to acquire Everyday Loans.

This may be true, but considering Provident’s own share price is down more than 81% over the past three years, the attack seems a bit petty. 

The better buy 

All of the above leads me to conclude that Non-Standard is the better buy for investors today. 

The company might have underperformed over the past few months, but its experienced management team is worth backing, in my opinion. Van Kuffeler has an impressive track record of creating value for investors, and the combined Non-Standard/Provident should give him a stable platform to build on. 

Even if the deal doesn’t go ahead, I think the outlook for Non-Standard is bright as the business continues to build on is successes (and Provident’s failures). Without the merger, analysts believe the firm’s revenue will double over the next two years. Over the same period, analysts are expecting Provident’s revenues to flatline. 

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.

Rupert Hargreaves owns no share 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 For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

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

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »