LONDON -- Ace City investor Neil Woodford has thrashed the FTSE 100 over the past 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. Fewer than one in five of the U.K.'s top 100 companies earn a place in his market-beating portfolios.

The following three companies are all at a price-to-earnings ratio of less than 10:


Share Price (Pence)


AstraZeneca (LSE:AZN) (NASDAQ:AZN)



BAE Systems (LSE: BA) (OTC:BAES.Y)



Wm. Morrison Supermarkets (LSE:MRW)



The pharmaceuticals industry is Woodford's biggest sector bet. And AstraZeneca is his biggest single holding, weighing in at more than 8%.

The No. 2 pharma group within the FTSE 100 is suffering falling revenues because of expiring patents on some of its blockbuster drugs. However, the market likes what it's been hearing from new chief executive Pascal Soriot, who took over last October -- particularly his detailed plans for returning Astra to growth, announced last week.

It will take some time for Soriot's strategy to bear fruit. As such, analysts are forecasting an 18% fall in earnings per share this year, followed by a 3% fall in 2014. The forecasts push the historic P/E of 7.7 up to 9.9 on the 2014 EPS number -- still firmly in value territory. There's a chunky forward dividend income of 5.6%, too.

BAE Systems
BAE Systems is another of Woodford's holdings that has seen its revenues under pressure. In BAE's case, cutbacks in defense spending in the company's major U.S. and U.K. markets have been the source of the problem.

However, while AstraZeneca's return to growth is expected to be rather protracted, news flow has been improving at BAE, and the City is forecasting a quick earnings bounce-back for the company after a 15% decline in 2012.

Analysts have penciled in EPS growth of 10% for 2013. That forecast means the historic P/E of 9.9 falls to just 9 for the current year. There's a prospective dividend income of more than 5% to boot.

Morrisons is the only supermarket Woodford holds in his funds. In reporting its annual results earlier this month, the company said it expects the challenging consumer and market environment seen in 2012 to continue in 2013.

Nevertheless, chief executive Dalton Philips was upbeat about accelerating the group's multichannel presence and chain of convenience stores. Morrisons is behind its rivals on both these fronts, but the flipside of that is it has greater scope for growth.

However, analysts are expecting group earnings to make little headway for the next year or two. After a 7% rise in EPS last year, City forecasters reckon EPS will be no higher in two years' time. As such, the historic and forward P/Es are the same -- 9.9 -- while a prospective dividend income of 4.7% is above the market average.

Woodford excels at finding big winners among unloved shares for his market-beating funds, and two of the three companies I've highlighted feature within this newly updated Motley Fool report.

You can download this report for free right now -- and enjoy reading an exclusive analysis of eight of Woodford's favorite blue chips. Simply click here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.