While neither of the two companies made the top ten list in Woodford’s he highlighted them as examples of the types of companies in which he likes to invest.
According to Woodford, Next is a stock he hasn’t owned since 1999: “At first glance, this investment decision doesn’t seem to fit comfortably with my cautious outlook for the UK consumer economy. But it is a great example of how I think a business should operate from the perspective of capital allocation,” Woodford said.
Despite a very challenging consumer environment, it has been an outstanding business over the past 10 years, Woodford added, and has delivered steady growth on a per share basis thanks to a very disciplined share buyback policy.
“I believe it can continue to deliver over the next 10 years. It out competes its nearest rival M&S and has a very successful online business,” he said.
The other stock highlighted is the AA, of which Woodford said: “It is an unbelievably cash generative business with huge brand recognition and a strong subscription model.”
While he is careful to note that it is currently highly indebted, Woodford says: “the new management team has paid down its most expensive debt using some of the money raised in the float and it looks well-placed to deliver steady long-term growth.”
Gary Reynolds, CIO at Courtiers told Portfolio Adviser the choice of these stocks is completely in keeping with Woodford’s previous track record.
“This is how he was trained to look at stocks; as an income investor you are looking for consistently profitable companies that are not going to go bust,” he says.
Reynolds added, “These are outstandingly cash generative businesses that are not too highly leveraged.”
