David Prosser: Good and bad news for those into stocks

Outloook: Mr Woodford's view is that certain sectors are now fundamentally undervalued

Not too many investment managers have consistently produced market and peer-beating performance over many years, so when someone who does fall into that category speaks out, it's worth listening very carefully. It is fascinating then, to hear the thoughts of Neil Woodford, the long-serving Invesco Perpetual fund manager, one of the very select band of consistent top performers in the UK.

Mr Woodford has news that is both good and bad. On the downside, he sees no "meaningful" economic recovery for at least three to four years – a much more gloomy forecast than the Treasury's, for example. Happily, however, Mr Woodford believes it will be possible for stock market investors to make a profit well before the recovery arrives.

His gloomy economic prognosis is based chiefly on the ongoing credit squeeze, and with further gloomy figures from both the Bank of England and the Council of Mortgage Lenders yesterday, it is difficult to disagree. He also points to continuing rises in unemployment as a potential brake on the crucial consumer sector.

Fortunately, stock prices do not always move in tandem with the economic cycle and Mr Woodford's view is that, with bearish sentiment having pushed the whole market downwards, certain sectors are now fundamentally undervalued. Interestingly, he points to recession-resilient areas, with potential for dividend growth and strong cash flow, such as tobacco, big pharma, utilities and telecoms, as the places to be. Those classic defensive sectors would normally be the ones to back at the start of a recession, rather than when the focus is turning towards recovery. But Mr Woodford doesn't believe we are yet in such a time, and he hasn't often been proved wrong.