Will these bold bets pay off for Neil Woodford?

Star fund manager Neil Woodford is known for his big and successful bets on FTSE 100 stocks such as British American Tobacco and AstraZeneca. But he's also a big fan of smaller, more speculative firms.

Today I'm going to take a look at two smaller stocks which have each grown to become top 20 holdings in Mr Woodford's flagship Equity Income Fund. In both cases, Woodford Funds is also the largest institutional shareholder in each firm.

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Too clever by half?

Mr Woodford is known for investing in small pharmaceutical, biotech and technology stocks. His team is able to research these fairly effectively in the UK. However, the US market for such firms is many times larger. That may be one reason why he has invested heavily in portfolio firm Allied Minds (LSE: ALM).

This firm invests in life science and technology start-ups in North America, with the aim of turning academic discoveries into commercial products. Investors in the company hope that this portfolio approach -- combined with skilled research -- will result in Allied striking gold.

The payback for this patient approach is the potential for a one-off windfall or lucrative long-term licensing revenues, such as from a new medicine. The risk, of course, is that this may never happen.

So far, Allied hasn't managed to generate any cash for shareholders. The company has no revenue and is expected to report a loss of $88.7m for 2016.

One sign of hope is that the group's founder and CEO, Chris Silva, has recently stepped down. He's been replaced by Jill Smith whose appointment is intended to "accelerate commercial development across the portfolio."

Ms Smith may succeed, but Allied remains highly speculative. If you're tempted to follow Mr Woodford's lead, it's worth remembering that this stock only accounts for 1.83% of the Woodford Equity Income fund. I'd display similar caution if I was to invest myself.

This disruptive business could change everything

Woodford Funds is the largest shareholder of online estate agent Purplebricks Group (LSE: PURP). I'd imagine the holdings are now showing significant profits as Purplebricks' stock has doubled in value over the last year.

There's no doubt in my mind that the business model works and is gaining market share fast. Sales rose by 159% to £18.7m during the first half of the current year, while gross profit rose by 153% to £10.2m.

A UK gross profit margin of 55% suggests to me that the Purplebricks' UK operations could soon start to generate meaningful profits. The risk is that the shares are already valued to reflect this growth potential.

A net loss of £9m is expected this year, as the firm continues to expand into new markets. But a profit of £1.14m is expected for 2017/18. That puts it on a forecast P/E of 165.

I'd normally run a mile from such an ambitious valuation. But Purplebricks is expanding fast and claims to have 67% of the UK online estate agency market. The group has also just raised £50m to fund a move into the much larger US market.

This stock could double or triple again. But it could also collapse. There's no way to know. For me this is too speculative. But growth investors should probably continue to hold.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.