One Neil Woodford stock I'd buy and one I'd sell

Neil Woodford has been in the headlines for all the wrong reasons of late with several high-profile investments going against the famed investor. But scrolling through his funds' holdings reveals a slew of great, and not so great (in my opinion), shares that may interest Motley Fool readers.

A history of spectacular returns 

One that's caught my eye for positive reasons is a stock that I've long been bullish on - litigation finance provider Burford Capital (LSE: BUR). The firm's unique business model provides funding for long and expensive court battles to corporations in return for a cut of any future payout. It has proved immensely popular with corporations looking to cut down on legal costs, insurers seeking to spread risk, and investors clamouring for exposure to a highly lucrative asset class.

And as the world's largest provider of litigation financing, Burford is benefitting hugely. 2017 saw its income double to $341.2m, net profit after tax increase by 130% to $264.8m and its return on equity leap from 21.1% to 37.4% year-on-year.

This record performance was driven by great returns on cases it invested in as well as an uptick in income from its investment management services from $0.6m to $15.6m. For now, this business line represents a tiny proportion of the overall business, but over the long term it could provide steady returns to balance out the lumpiness of higher returns from cases settling.

It isn't all rosy for potential investors in Burford as the company's stock isn't cheap at 21.7 times forward earnings, and its co-founders and CEO and CIO recently sold one-third of their holding in the company. However, this valuation looks entirely reasonable to me given Burford's track record and huge addressable market. And the insider selling doesn't bother me as this is the first time the co-founders have sold stock. I can't blame them for wanting to diversify given that their remaining 8.3% stake in the company is worth a staggering £250m.

Is the best behind it? 

One Woodford holding that I'd run from rather than buy is homebuilder Taylor Wimpey (LSE: TW), which issued its Q1 trading update this morning. The results were decent, but not spectacular, as management blamed poor weather and lapping a tough comparative period for sales per outlet per week. These dropped from 0.93 to 0.85 year-on-year and its order book shrank slightly to £2,155m.

But to be honest, these results aren't overly concerning. The company continues to print cash as sky-high demand and constrained supply of new homes has kept prices and margins high for homebuilders. However, at this point in the business cycle, I would not want to own stock in such a cyclical business.

The domestic economy continues to grow adequately, but with wage growth minimal, consumer confidence shot and a bevy of potential macroeconomic headwinds gathering on the horizon, I see little potential for the valuation of homebuilders to rise substantially from their currently subdued level. Investors who are more bullish on the domestic economy than I could find Taylor Wimpey intriguing at 11 times trailing earnings with a phenomenal 7.9% dividend yield. But a rocky outlook for the British economy leaves me bearish on the homebuilder.

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Ian Pierce 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.

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