Renowned fund manager Neil Woodford has been thrashing the market for a quarter of a century. Woodford is a very selective stockpicker. Fewer than 1 in 10 of the UK’s top 350 companies earn a place in his funds.
Hence, I always keep an eye on his holdings for promising investment ideas.
HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US), NEXT (LSE: NXT) and Provident Financial (LSE: PFG) are three Woodford picks that all delivered double-digits earnings growth last year and are set to post further strong rises in the years ahead.
NEXT
Retailer NEXT continued its long record of strong annual earnings growth with a 23% increase in EPS last year.
In a recent interim trading update, the company said it expects EPS growth of 12-18% for the current year — an upping of its previous guidance of 8-14%. Growth at the 15% mid-point of the new range gives a forward P/E of 16.4 at a recent share price of 6,895p.
NEXT is a recent investment for Woodford. He believes the company has “a very successful growth strategy” and deserves its higher rating.
Provident Financial
Provident Financial has been supplying credit to the sub-prime market since 1880. The group still does traditional doorstep lending, but also offers other services, including Visa-branded credit cards and online loans.
Woodford has been an investor in Provident Financial for many years, and has been rewarded with regular double-digit annual EPS growth, including an increase of 12% last year.
Analysts are forecasting growth of 14% for both this year and next; and that may be conservative, because this year’s first-half EPS was ahead by 25%. At a recent share price of 2,064p, 14% earnings growth would imply a P/E of 16.
HSBC
Few companies from the real super-heavyweight echelon of the FTSE 100 were able to beat the 14% increase in earnings per share (EPS) reported by HSBC last year.
Analysts reckon a 7% decline in this year’s first-half earnings is a blip. The consensus is for a big swing back in the second half, with full-year EPS coming in 7-8% ahead of last year; followed by similar growth in 2015. At a recent share price of 643p, HSBC trades on a forward P/E of just 12.
HSBC is the biggest and most geographically diversified of the Footsie’s five banks, and the only one that Woodford currently rates as investible.