Neil Woodford has been busy repositioning his portfolios through the summer. As a blog post on his website this week explains, the changes "have been designed to capture a contrarian opportunity that has emerged in domestic cyclical companies where valuations are too low and future growth expectations far too modest."
The post goes on to reveal that his flagship Equity Income fund has increased its bias towards UK revenues to 55.5% from 41.9% two years ago and that UK revenues account for 68.3% of his more recently launched Income Focus fund.
Countryside Properties(LSE: CSP), which released a trading update today, is one of a number of new stocks he's bought to play the contrarian opportunity in domestic cyclicals.
Well placed to deliver strong growth
In a placing in May, Woodford picked up 40.7m shares at 310p-a-pop, giving him a stake of 9.05% in the company. He bought more in June and July, taking his holding to 45.4m shares (10.08%).
Woodford and his team said: "Countryside is a well-managed property construction and development business which has a close relationship with the public sector, specialising in improving social housing. We see the company as extremely well placed to deliver strong growth."
Countryside said in today's update for its financial year ended 30 September that customer demand remained strong throughout the year, underpinned by low interest rates and the government's Help to Buy scheme. Management added that an excellent pipeline of work and a record year-end forward order book give it "great confidence to deliver our medium-term plans."
The shares are currently trading a tad higher on the day at 349p. This puts the company on 12.9 times expected earnings for the year just ended, falling to just 10.1 times forecast earnings for the year to September 2018. In addition to the low forward P/E, the price-to-earnings growth (PEG) ratio of 0.4 is deeply on the value side of the PEG fair-value marker of one. And a forecast dividend, yielding 3%, has considerable scope to increase in future as it's covered an immense 3.3 times by earnings. The shares look cheap and eminently buyable to me.
UK brick manufacturer Forterra(LSE: FORT) is another new stock Woodford has bought this year. He accumulated 34.4m shares during April, giving him a 17.17% stake in the company and increased it to 38.1m shares (19.03%) before the end of July.
Woodford and his team believe that after a period of consolidation in the UK industry and with the weakness of sterling making imports from Europe less economic, "the long-term prospects for Forterra now look very attractive. We believe the company is well-positioned to benefit from steady growth in the UK construction industry in the years ahead."
Woodford thought the valuation of Forterra was "very appealing" when he was buying in April. However, the price was in the region of 200p then and is now not far short of 300p. Nevertheless, today's rating of 12.5 times forecast earnings for the year to December, falling to 11.4 times next year, appears reasonably attractive. And with a PEG only a little above one and a dividend covered more than 2.5 times by earnings, giving a yield of 3.1%, rising to 3.5%, I'd put the stock in the cheap-to-fair value area.
What about the Brexit factor?
Woodford has taken a bold stance on Brexit. Yesterday's blog post said: "The UK economy has thus far defied expectations of a Brexit-induced slowdown and, regardless of how the ongoing negotiations with the EU conclude, we remain confident in its long-term economic prospects."
Not everyone sees it as quite so black-and-white as Woodford. And to help Britain invest better during this uncertain time, the experts at The Motley Fool have compiled a FREE guide called Brexit: Your 5-Step Investor's Survival Guide.
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G A Chester has no position in any of the 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.