Lloyds Banking Group plc is now one of Neil Woodford's top 10 holdings

Neil Woodford has an enviable record over more than half a century of investing. The key to his success has been identifying and avoiding industries where trouble -- and the destruction of shareholder value -- is looming. And at the same time, spotting sectors with good tailwinds and selectively picking the best cash-flow-strong stocks from among them.

This is something that's easier said than done, as it often involves taking a contrary view to the prevailing wisdom. Woodford's latest big contrarian position, which has emerged in the last few months, is his conviction that the outlook for the UK economy is far better than the market would have us believe.

The latest update from Woodford Towers shows him continuing to pump cash into carefully selected companies with a domestic focus.

Black Horse favourite

Having shunned banks for years, Woodford's revelation in May that he had bought a stake in Lloyds(LSE: LLOY) signalled not only his optimism on the UK economy, but also his confidence that banking is finally beginning to normalise after the financial crisis. Also, of course, it shows he believes the Black Horse is the pick of the field.

The latest update tells us that he has continued to build his stake in Lloyds for both his Equity Income fund and Income Focus fund. As of 30 June, Lloyds ranked as the eighth-largest holding in the former fund and the sixth-largest in the latter.

At a current share price of 66.5p, Lloyds trades on just 9.4 times forecast earnings, while the forecast dividend gives a superb yield of 6%. This could prove to be outstanding value for long-term investors and I agree with Woodford that the stock looks a very attractive buy at the current price.

Red material upside

Another disclosure in the latest update that caught my eye was the introduction into the Income Focus fund of a new position in housebuilder Redrow(LSE: RDW).

At a share price of 555p, Redrow trades on 8.2 times forecast earnings, with a prospective 2.7% dividend yield. The yield is lower than Woodford's other housebuilder bets (Taylor Wimpey, Barratt Developments, Bovis Homes and Countryside Properties) but he told us Redrow's management has been investing in future growth and that he sees material upside in cash returns to shareholders as the investment bears fruit in future years.

I can see where Woodford's coming from and I note that Redrow's dividend payout is currently running at just 18%. The low earnings multiple and the scope for substantial increases in the dividend lead me to agree again with Woodford that the shares look very buyable at the current price.

Kaleidoscope of trades

Other domestically-focused stocks Woodford has been increasing his stake in include the aforementioned housebuilders, out-of-favour FTSE 100 firms Provident Financial and Next and mid-cap Stobart. He's also added selectively to some stocks with more international exposure, including blue-chip Vodafone and small-cap Hostelworld.

To fund the latest purchases, he completed the disposal of his holding in global tobacco giant British American Tobacco. Tobacco has been the UK stock market's best-performing sector over the last two decades and Woodford has benefitted from heavy exposure to it. However, with the exception of Imperial Brands, which he continues to hold on the basis that it remains undervalued, he reckons "the valuation opportunity elsewhere in the sector has largely played out."

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Imperial Brands, Lloyds Banking Group, and Redrow. 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.