Fund manager Neil Woodford has been in the news a lot recently, for all the wrong reasons. Before setting out to build his own fund management company in 2014, Woodford had developed a reputation at his previous employer Invesco, for his market-beating investment performance thanks to a preference for defensive income stocks.
Unfortunately, in recent years this approach has not paid off and several high profile failures have dented his reputation.
However, while the press has focused on the failures, he's had some tremendous successes as well, which analysts seem to be overlooking.
Burford Capital(LSE: BUR) for example is one of the top five holdings in the LF Woodford Equity Income fund. Over the past five years, this provider of litigation finance has produced a return for investors of 1,332% excluding dividends. Over the past 12 months, including dividends, the stock has returned 80%.
And it looks as if Burford's growth is only just getting started. Last week the company reported it had managed to more than double income and profit in 2017 and "persistent demand" for its services led to "record new investment commitments" of $1.3bn, "sowing seeds for future profits." What's more, even though it's only a few months old, 2018 is shaping up to be another exciting period for the group. According to last week's market update, $129m of capital has already been committed to 12 new investments during the first two months of 2018, compared to one single $1m investment in the same period last year.
In my opinion, this activity implies that the company is on track to smash City expectations for growth this year. After 2017's record performance, analysts are expecting earnings per share to slide by 30% to $0.84 (60p) for 2018. But with the firm looking as if it can break another income record this year, it seems to me as if these forecasts are a tad conservative.
Analysts have already hiked their earnings targets by 12% over the past month. With this being the case, Burford's forward P/E of 22.4 does not seem too demanding.
The market's best company?
Another Neil Woodford growth stock I'm considering for my ISA is motor claims accident management service business Redde(LSE: REDD).
Redde is a tremendous growth stock. Over the past five years, shares in the company have produced a total return of 42% per annum, making them one of the best performing investments in the entire London market.
The performance is a result of a combination of both earnings growth and multiple expansion. Over the past five years, revenue has doubled as the company has moved from a lossmaking position to an estimated net profit of £36m as expected by City analysts for fiscal 2018. Off the back of this projection, analysts expect the group to earn 11.9p per share for 2018, giving a forward P/E of 14.2.
Given the fact that growth is expected to slow during 2019 (net profit growth of 6.4% projected) this valuation is a bit on the expensive side. Nevertheless, the company currently pays out all of its earnings to investors via dividends, which means today the shares are trading at a forward dividend yield of 7%, more than double the broader market average. This yield is the primary reason why Redde looks attractive to me.
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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.