The jittery market of late has been punishing companies severely for anything less than positive newsflow. Master investor Neil Woodford has taken the opportunity to up his stake in some stocks that have suffered from the market’s fretfulness.
In particular, the CF Woodford Income fund has increased its holdings in blue chips BT Group (LSE: BT-A) (NYSE: BT.US), Rolls-Royce (LSE:RR) and Capita (LSE: CPI).
Capita
On 23 July, a month after Woodford first bought shares in outsourcer Capita for his new fund, the company reported strong first-half trading. The shares rose 5% in response to 1,210p.
However, on 29 October, the UK’s Ministry Of Justice named preferred bidders for 21 probation services contracts. Capita had failed to win any of them, and the shares dived 6% on the day to 1,082p.
Woodford’s team thought the sharp fall was unjustified: “We took advantage of short-term weakness by adding to our position and continue to view the long-term outlook for the shares very positively”.
Capita’s shares are trading at 1,080p as I write, putting the company on a current year forecast P/E of 16.8, falling to 15.6 for 2015.
Rolls-Royce
Woodford’s team say being invested in Rolls-Royce in 2014 has been “a painful experience”. The company’s shares hit a 52-week low of 780p following an announcement on 17 October in which management revised down previous guidance on 2014 and 2015 performance expectations.
Woodford’s fund added to its holding, noting that the medium-term outlook for Rolls-Royce was much more positive, and that “in PE terms, it hasn’t traded at these levels since 2009”.
The team added: “This is exactly the sort of market inefficiency that we aim to exploit — the market is focusing on the short-term disappointment, whereas we look beyond this to assess the long-term opportunity”.
Rolls-Royce’s shares have bounced from their lows — to 870p as I write — but still trade below the FTSE 100‘s long-term average forward P/E of 14.
BT
On 30 October, BT released half-year results that were broadly in line with market expectations. Nevertheless, the shares fell 2% on the day to 368p — and remain little higher at the time of writing, giving the company a forward P/E of 12.5.
Woodford’s team put the market’s cheerless response to the results down to “a slowdown of growth in consumer broadband subscriptions”. However, as with Capita and Rolls-Royce, the holding in BT was increased on the basis that Woodford and co. “continue to view the long-term outlook for the shares very positively”.
As at the end of October, BT stands as Woodford’s fifth-largest holding, with Capita at six and Rolls-Royce at 10.