2 Neil Woodford stocks set to beat the FTSE 100

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Neil Woodford. Source: Woodford Investment Management Ltd

Neil Woodford is one of the most successful UK investors of his generation. Therefore, his major holdings are worth considering for nearly any long-term investment portfolio. Here are two of his biggest holdings which could outperform the FTSE 100 in 2017 and beyond.

Changing strategy?

The change of CEO at GlaxoSmithKline(LSE: GSK) could be a major event for the business. Currently, it is essentially three world-class businesses rolled into one, with its pharmaceuticals, consumer goods and vaccines divisions all offering high growth potential. However, there have been calls for the company to be split, while other investors have suggested more investment in its consumer goods arm may be worthwhile.

Looking ahead, a refreshed strategy under a new CEO seems somewhat likely. After all, it is somewhat rare for a new CEO to have the same views and opinions as his or her predecessor. However, this does not necessarily mean high risks for the company's investors. GlaxoSmithKline has been one of Neil Woodford's major holdings for a long while and given its improving financial outlook, it seems probable that he will stick with it.

The company is forecast to record a rise in its earnings of 8% in the current year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 1.7. For a major healthcare company, such a low valuation is somewhat difficult to justify. That's especially the case when GlaxoSmithKline yields 4.9% from a dividend which is covered 1.4 times by profit.

Since its diversified business offers low positive correlation with the wider index and excellent defensive qualities, demand for its shares looks likely to remain robust in the long run. As such, outperformance of the FTSE 100 seems relatively likely.

Growth potential

While lending specialist Provident Financial(LSE: PFG) is forecast to record a rather disappointing 3% rise in its bottom line this year, it is expected to return to form next year. Its earnings are expected to increase by 13% in the next financial year, which puts its shares on a PEG ratio of only 1.1. This suggests more capital growth could be ahead following the 8% rise in the company's share price in the last three months.

Certainly, the outlook for the UK and other markets is somewhat uncertain. Rising inflation and a falling rate of wage growth mean that servicing and repaying debt may become more challenging in the near term. This means that it would be unsurprising for Provident Financial's forecasts to be downgraded to at least some extent in the coming months.

However, with a wide margin of safety, the company's shares could provide relative outperformance of the FTSE 100 at a time when it is at a record high. Furthermore, Provident Financial currently yields 4.6% from a dividend which is covered 1.3 times by profit. This indicates that inflation-beating dividend growth could be ahead, which may increase investor demand for the company's shares during the course of 2017.

Millionaire potential

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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.