Is it surprising that Neil Woodford has been adding to these holdings?

Neil Woodford is one of the most renowned fund managers in the UK and when Woodford purchases shares in a company, the investment world takes notice. The fund manager made some adjustments to his Equity Income portfolio in late September, and you might be surprised about the holdings he added to.

////>

Profit warning

The largest performance detractor for Woodford's fund in September was Capita (LSE: CPI), which issued an unscheduled trading statement in late September, downgrading profit expectations. The outsourcing giant blamed a slowdown in trading businesses, one-off costs incurred on the TfL congestion charging contract and delays in client decision making. It informed investors that it was now expecting profit before tax of £535m-£555m, around 10%-13% lower than consensus estimates at the time.

Capita's share price, which had been trading around the 1,000p before the news, dropped like a stone on the profit warning, falling around 40% in the space of a week to the 600p mark. Analysts were quick to downgrade their earnings estimates for the company.

However, not one to panic, Woodford took a rational approach to the profit warning, meeting with Capita management to discuss the issues. The fund manager came away from the meeting reassured that an equity issue wouldn't be required, that the dividend remains safe, and that Capita was already working through the problems "in order to restore the business to a healthier growth trajectory."

Woodford believes the market reaction to the profit warning was "disproportionate" and took the opportunity to add to his holding at the end of September at the depressed price.

City analysts now anticipate Capita generating earnings and dividends per share of 67p and 32p respectively for FY2016, which at the current share price equates to a forecast P/E ratio of 8.5 and a dividend yield of 5.6%.

These figures certainly look attractive at face value, and while many analysts aren't positive on the stock, Woodford obviously sees something he likes in Capita.

Long-term growth drivers

Another stock that Woodford added to in September was Legal & General Group (LSE: LGEN), trimming his position in Roche to fund the top-up.

City analysts aren't overly excited about Legal & General's short-term prospects either, with 11 of the 20 analysts covering the stock rating the company as a hold. However, perhaps Woodford is looking at the long-term growth drivers of the insurance giant such as ageing populations and welfare reform as the key to unlocking shareholder value here. Indeed, chief executive Nigel Wilson recently stated that the firm's long-term growth drivers "remain unaffected [by Brexit] and will continue to provide many growth opportunities."

There's no doubt it's been a pretty lousy 18 months for shareholders in Legal & General, with the share price slowly drifting down from within a whisker of 300p in March 2015 to 208p today. However, with analysts pencilling-in earnings and dividends of 21p and 14p per share respectively for FY2016, that leaves the insurer with a dividend yield of a formidable 6.7% and a forecast P/E ratio of just 9.9.

With Brexit uncertainty still in the air, the super high yield suggests that the market isn't quite convinced about Legal & General's prospects. However, with a sizeable 4.8% holding in his Equity Income Fund, Woodford is clearly happy to go against the crowd.

The Motley Fool's five stocks to retire on

While neither Capita nor Legal & General Group have had a great 2016, the same can't be said about the five stocks listed in this exclusive report from The Motley Fool: Five stocks to retire on.

I have to tip my cap to the analysts at The Motley Fool as despite 2016 being a highly volatile year, all five of the stocks listed in the report have risen strongly this year.

If you're looking for core portfolio holdings to buy and keep, this report could be an excellent place to start.

To find out which stocks The Motley Fool favours as long-term winners, for FREE, click here.

Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.