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 firms are all at a forward price-to-earnings (P/E) ratio of less than 11, compared with a market average of over 14:


Share Price (Pence)


Wm. Morrison Supermarkets (LSE:MRW)



Imperial Tobacco Group (LSE:IMB) (OTC:IMBBY)






Wm. Morrison Supermarkets
Forget Tesco and J. Sainsbury! If Woodford is right, Morrisons is the only U.K. supermarket worth holding.

A challenging consumer environment, which none of the supermarkets is expecting to end any time soon, has put the whole sector out of favor. Morrisons, at a share price of 263 pence, is currently more out of favor than its rivals.

On a forward 12-month basis, Morrisons is at a P/E of 10.1, compared with Tesco at 10.3 and Sainsbury's at 11.2. Morrisons also offers the highest dividend income: 4.9%. City experts see no earnings progress from Morrisons (or Tesco) on an 18-month view, but patient, long-term investors may be happy to take Morrisons 4.9% yield, while waiting for more benign economic conditions to return.

Imperial Tobacco
Woodford has been a big fan of tobacco companies for as long as I can remember. At the moment, he's particularly sweet on Imperial Tobacco.

The FTSE 100's No. 2 cigarettes firm, whose key brands are Davidoff, Gauloises Blondes, West and JPS, has been suffering from weakness in parts of the EU and a couple of other territories. However, Woodford reckons this weakness is more than discounted in the low valuation of Imperial compared with its peers.

At a current price of 2,346 pence, Imperial is on a forward P/E of 10.7 and offers a prospective dividend income of 5.3%. To put that in perspective, rival British American Tobacco is on a P/E of 14.7 and yield of 4.3%.

Woodford has plowed more money into security firm G4S over the past year than into any other FTSE 100 company.

The fallout from G4S's staffing blunder for last year's Olympic Games continues to rumble on -- the chief executive recently departed -- and the company's shares are currently trading near to their 52-week low.

At 245 pence, G4S is at a forward P/E of 10.9 -- a markedly lower valuation than a couple of other Woodford favorites in the support services sector: Serco, at a P/E of 13.1, and Capita, at 16.2. While G4S's prospective dividend income of 3.9% is not as high as Morrisons' or Imperial's, the yield is superior to that of peers Serco and Capita, and to the FTSE average of 3.3%.

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