PAll investors can make the mistake of paying too much for a stock. Renowned fund manager Neil Woodford is no exception. Today, I'm looking at three of his holdings you can buy right now at massive discounts to prices he paid.
Share price in reverse
Woodford participated in the IPO of AA(LSE: AA) when it was floated at 250p a share in June 2014 and bought again in a further placing at 385p in April 2015.
The shares have subsequently declined. They took another hit last Tuesday when the company fired its executive chairman Bob Mackenzie for "gross misconduct" (a Jeremy Clarkson moment with a colleague in a hotel bar) and also lowered its full-year forecast to "broadly in line with that of the last financial year."
The shares ended the week at 206p -- 18% below the price Woodford paid in the IPO and 46% below the price he paid in the 2015 placing.
(Roadside) recovery stock?
Back at the time of the IPO, Woodford described AA as a "very high-quality ... utility-like" business that had been "milked" by its private equity owners. He reckoned that, having been "liberated" by the IPO, it could deliver strong growth and shareholder returns.
It hasn't yet. Last year's revenue and profits were below those it posted in the year it came to market. Furthermore, it's made only modest headway in reducing its high level of net debt (£2.7bn from £3bn) and very high net debt/EBITDA ratio (6.7 from 6.9).
Nevertheless, Woodford has maintained his faith in the prospects for the business, increasing his stake on last week's bad-news day. I agree there's significant scope to grow the strong AA brand but I find the company's current debt profile off-putting.
Utilitywise or unwise?
Woodford bought shares in Utilitywise(LSE: UTW) in spring 2015 when they were trading north of 300p and also participated in a placing at 290p a month later. They're trading at 61p as I'm writing -- 79% below the placing price.
The company helps businesses get better value out of energy and water contracts. A camp of bearish analysts has always been sceptical of its business model and revenue recognition policies. And they've been proved right.
Woodford and his team said in mid-July they were reassured by a call with management but added: "We continue to monitor the situation closely." The company released another issue-riddled trading update last week, so it will be interesting to learn what Woodford's position is now. My position is to watch from the sidelines for the time being.
Needle in a haystack?
Woodford has bought shares in 4D Pharma(LSE: DDDD) at prices up to 790p (in a placing in December 2015). They're currently trading at 270p, with most of the fall having come this year.
He said last week: "Shares in 4D Pharma declined, despite continued positive progress in the development of its live biotherapeutic therapies ... We remain very attracted to a long-term commercial opportunity that is being substantially overlooked by the market."
This is one of numerous pre-revenue, lossmaking businesses Woodford has bought for their long-term potential. There could be some big winners among them but needles in haystacks come to mind. As such, I think investing in Woodford's Patient Capital Trust (or a specialist biotech fund) is a better option than buying one or two individual stocks.
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G A Chester has no position in any shares 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.