Should you buy these under-the-radar Woodford holdings?

It’s no secret that Neil Woodford is a fan of both the healthcare and tobacco sectors.

Indeed, Woodford’s top four holdings as at the end of July were none other than AstraZeneca, GlaxoSmithKline, Imperial Brands and British American Tobacco and these four holdings alone made up over 30% of his well renowned Equity Income Fund.  

But what’s becoming increasingly clear is that Woodford is more than happy to look outside the square in his search for undervalued stocks, and a closer look at his top 10 holdings reveals some interesting names.

Here’s a look at two of the lesser known stocks in Woodford’s top 10 holdings.

Provident Financial

The fifth largest holding in Woodford’s Equity Income Fund (4.5% of the fund), is financial services group Provident Financial (LSE: PFG), and it’s not hard to see why Neil is favourable towards the company.

Promoted to the FTSE 100 at the end of 2015, Provident specialises in credit cards, consumer credit and vehicle finance and has been a very strong performer over the last five years, generating annualised total shareholder returns of a huge 28% per year.

The company has an excellent track record of revenue and earnings growth and its dividend has grown significantly in recent years from 64p per share in FY2010 to £1.20 per share in FY2015. At the current share price, Provident is yielding 4.1% but Woodford believes the dividend has the potential to grow “in excess of 10% per annum.”

Woodford has described Provident as an “incredibly well-managed, growing business” and has taken advantage of price weakness this year to add to his holding. Trading on a P/E ratio of 17.4 times next year’s earnings, in my opinion Provident looks reasonable value for a company with such a consistent track record of revenue growth and excellent dividend growth prospects.

Capita

Coming in as the ninth largest holding in Woodford’s fund (2.94% of the fund) is another lesser known stock, Capita (LSE: CPI), which specialises in business process outsourcing and professional services for public and private sector clients.

Another company with a consistent track record, Capita has seen its revenue grow from £2,744m in FY2010 to £4,674m in FY2015, a compounded annual growth rate (CAGR) of 11.2% and its share price enjoyed an excellent run between 2012 and 2015, rising from around 600p to over 1,300p in three years.

However in February this year, the company’s shares fell to a two-year low after it announced that both the value of its bid pipeline and the average length of its contracts had fallen, and the share price has continued to drift lower since, now down almost 14% year-to-date.

An update in May revealed that the company had enjoyed a “solid start to the year” and with the stock trading on an undemanding P/E ratio of 14.1 times next year’s earnings, with a dividend yield of 3.1%, it might be worth following in Neil Woodford’s footsteps and buying on share price weakness.