The big story from the FTSE 100 this week is the spectacular crash of sub-prime lender Provident Financial. With Neil Woodford owning 19% of the company -- and publishing a defiant blog post on his investment -- his recent buys and interesting views on other stocks have been rather cast into the shadows.
For example, he's bought more shares in his top holding AstraZeneca and continued to build his stake in Lloyds for his Income Focus fund. The Black Horse is now his third-largest holding with a weighting of 3.9%.
However, I'm particularly interested in two other Woodford stocks that I happen to agree look great buys right now. One is a familiar blue-chip giant, whose shares he believes "have not looked as attractive as they are currently, for several years." The other is a dividend stock you've probably never heard of that he's just bought a 17% stake in.
Woodford has held tobacco companies for decades but believes the "valuation opportunity" he identified all those years ago has now "largely played out." With one exception. He continues to see Imperial Brands(LSE: IMB) -- his last remaining holding in the sector -- as seriously undervalued.
The company's shares are currently trading at around 3,200p, which is a 22% discount to their all-time high of 4,130p achieved this time last year. As Woodford has pointed out, Imperial remains a highly cash generative business with a strong dividend-growth record. The decline in the shares has put it on an undemanding price-to-earnings (P/E) ratio of 11.8 with a smokin' dividend yield of 5.4%.
Investor sentiment towards the industry hasn't been helped by regulatory changes to address issues of addiction proposed last month by the US Food and Drug Administration. However, Woodford and his team argue that this could ultimately be beneficial to Imperial: "We see this as the beginning of a process to deregulate next-generation products."
I spent yesterday evening reading the AIM admission document of Global Yachting Group -- now GYG(LSE: GYG) -- which listed on 5 July with a placing at 100p a share. I have to say, I like the cut of its jib.
This week's update from Woodford's Income Focus fund revealed: "We added a new stock to the portfolio when we participated in the initial public offering of GYG. It is a cash generative business, which is expected to pay an attractive dividend and support a progressive dividend policy going forward."
GYG is a leading super-yacht painting, supply and maintenance company with a 17% share of the global market. Its experienced management team is looking to grow the business organically and has also identified a number of potential targets for strategic acquisitions that would complement the group's existing offering.
The board intends to pay a current-year dividend yielding 3.2% on the IPO price. This is pro rata from the listing date based on an annualised yield of 6.4%. The shares are now trading at 117.5p (market cap £55m), so we're looking at a yield of 2.7%, rising to 5.4%+ next year. The handsome dividend is supported by forecast earnings of 9p a share, rising to 11.2p, which gives an attractive P/E progression of 13.1 down to 10.5.
Finally, the balance sheet is decent, with the IPO having reduced net gearing of 93% at the last year-end to 38% on a pro forma basis.
G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca, Imperial Brands, and Lloyds Banking Group. 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