5 Neil Woodford Low-P/E Shares

LONDON -- Ace City investor Neil Woodford has thrashed the FTSE 100 over the last five, 10, and 15 years. Hence, I always keep an eye on his holdings for promising investment ideas.

Woodford is very selective in picking shares for his 20 billion pound funds. As few as one in 10 of the U.K.'s top 350 companies earn a place in his market-beating portfolios.

The following five companies are all on P/Es of less than 10 and are ranked cheapest first:

Catlin
Catlin has the lowest price-to-earnings ratio amid a bevy of mid-cap non-life insurers held by Woodford. The global specialty property and casualty insurer and reinsurer operates the largest syndicate in the Lloyds of London market. Catlin recently reported a strong performance for the first six months of 2012 on the back of record underwriting and hardening rates -- a far cry from the same period last year, when it suffered record catastrophe claims, especially from the tsunami in Japan. A year later, Catlin's chief executive says, "We look ahead with confidence."

BAE Systems
Defense contractor BAE Systems is at No. 10 in the top 10 holdings of Woodford's High Income fund, with a weighting of 3.7%. BAE has suffered from recent defense spending cutbacks in its major U.S. and U.K. markets. However, in its recent half-year results, the company said, in line with previous guidance, that it anticipated modest growth in underlying earnings per share for the full year. Analysts have penciled in similar modest growth for 2013.

AstraZeneca
Pharma group AstraZeneca has an aggregate weighting of more than 8% in Woodford's funds, making it his largest holding. The company has been dogged by poor investor sentiment for the last few years, as it's been under pressure from patents expiring on some of its major drugs. However, recent news flow has been more positive. Just this week, Astra announced an agreement with U.S. pharma group Pfizer. Pfizer will acquire exclusive global rights to sell a nonprescription version of Astra's acid reflux drug, Nexium. The upfront payment from Pfizer will increase Astra's core EPS for 2012 by about $0.16. As a consequence, Astra has increased its guidance on EPS for the year to the range $6 to $6.30.

BT Group
BT, the U.K.'s leading fixed-line telecom group, is a top-five holding in Woodford's funds, with an aggregate weighting of around 5%. Last month, the group reported an 11th successive quarter of double-digit EPS growth when it announced its results for the first quarter to June 30. However, analysts are forecasting more modest growth for the full year and for fiscal year 2014.

Rentokil Initial
Woodford bought into mid-cap pest control and cleaning group Rentokil Initial some 18 months ago. He sees Rentokil as "a significant restructuring opportunity." It's beginning to look like a good call, because Rentokil recently reported encouraging first-half results. Most significantly, the directors said they expected City Link -- the courier business Rentokil acquired in 2006 and a persistent source of losses -- to turn profitable in the fourth quarter.

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