Ken Fisher is a billionaire fund manager managing ~$33 bn worth of equity assets through his investment advisory firm Fischer investments. In this article, I would be discussing some of the top buys from Fisher Investments, as released in its most recent 13F filing with SEC.
Fairchild Semiconductor International Inc. (FCS): My Take - Buy
Fisher Investments bought 93,849 shares of Fairchild Semiconductor last quarter. Fairchild is a leading provider of analog and discrete semiconductors for a broad range of end-markets including computing, handsets, consumer and industrial.
After the stock bottoming out in October last year due to high inventories and lower utilization rates, the company is set to benefit from the cyclical acceleration in the business through 2012. The management indicated that structural changes in the company along with inventory correction and improved order rates should drive revenue growth in 2012.
Further near term margin expansion is likely due to utilization rates bouncing back to high 80s, lower fab conversion costs and product mix towards higher margin mobile ICs and MOSFETs. An additional capacity after its 8 inch conversion of Maine Fab is expected to help FCS gain market share in mobile ICs. Also, with growing trends in energy efficient appliances, I believe Home Appliances along with Mobile ICs segment will drive long term growth for FCS.
Danaher Corp. (DHR): My Take - Buy
Fisher Investments bought 167,860 shares of Danaher last quarter. Danaher Corporation designs, manufactures, and markets professional, medical, industrial, and commercial products and services primarily in North America, Europe, and Asia/Australia. It operates in four segments: Professional Instrumentation, Medical Technologies, Industrial Technologies, and Tools & Components.
Improving metrics at Beckman Coulter, DHR's most recent acquisition in 2011 is a positive for the company. Improved focus on execution has resulted in customer retention and new customer addition at Beckman. This is translating into good consumables growth. I believe that growth at Beckman will be the key to the DHR's bullish story and good news on this front is expected to drive stock's outperformance.
Over the past ten years Danaher has delivered a good combination of high earnings growth and low volatility. After recent restructuring and with a higher exposure to consumables, aftermarket sales and emerging markets; I believe DHR is a good defensive stock and recommend a buy on the stock.
Embraer SA (ERJ): My Take - Buy
Fisher Investments bought 167,925 shares of Embraer last quarter. Embraer S.A. engages in the development, production, and sale of jet and turboprop aircraft for civil and defense aviation markets. It also offers aircrafts for agricultural use; structural components, mechanical and hydraulic systems, and technical activities related to the production and maintenance of aerospace material.
Embraer recently gave better than expected guidance for 2012. ERJ has a dominant position in the 70-110 seat market and is the first business jet manufacturer with emerging market economics. I believe ERJ is well placed to take advantage of the upcycle in the Aero industry and is likely grow its revenues at ~10% CAGR through 2014.
I also see a considerable upside potential for its margins. The company's implementation of lean manufacturing technologies for the past few years is expected to be the key driver for its margin expansion similar to how it worked for Boeing (BA) a decade ago. In addition to good topline and bottomline prospects ERJ is also likely to benefit from increasing its stake in OGMA-Industria Aeronotica de Portugal S.A. This is a positive for ERJ as it increases ERJ's exposure to defense, aftermarket and service markets in Europe. At 11.7x forward earnings Embraer is available at a discount to its U.S. peers and I believe it is a good value buy at current levels.
Baidu.com Inc. (BIDU): My Take - Buy
Fisher Investments bought 94,512 shares of Baidu last quarter. Baidu is the #1 internet search provider in China with a focus on Chinese web pages. The company generates a majority of its revenue through pay-perclick advertising and customized search solutions.
Baidu is still in the early stages of online advertising boom in China and is expected to benefit from the increased online ad budget allocated by the traditional advertisers. Many large customers now see Baidu's search marketing platform as a more effective brand building medium. With new investments in technology, contextual ad network is expected to pick up momentum. Despite slowdown in SME demand, strength in large advertisers will be the major growth driver for 2012.
Further, Baidu's strategy for mobile indicates growing opportunity in this space. This will be more of a long term catalyst with Baidu currently focusing more on increasing its user base by enhancing user experience. New product offerings in this space include Baidu Yi and Baidu maps. Baidu is expected to partner with handsets companies to pre-install Baidu Yi, a mobile OS. Also, with Baidu maps users on mobile increasing by 10 folds in 2011, Baidu is all set to capture the market share and hold a dominant position similar to its position in PCs market.
I believe that Baidu continues to enjoy superior pricing power against its peers due to its dominant market share and keyword bidding model. With a shift in large advertisers ad spend and Baidu's focus on monetization of social, mobile and other vertical search offerings, revenue growth outlook for both near term and long term is expected to be solid.
Johnson Controls Inc. (JCI): My Take - Avoid
Fisher Investments bought 68,360 shares of Johnson Control last quarter. Johnson Controls is a $40 billion diversified industrial supplier, world leader in automotive seating and interior components and systems. It is also the largest North American automotive battery supplier and leading supplier of control systems and facilities management services.
Johnson Controls reported below consensus 1Q 2012 results and also lowered its guidance for the current quarter. The guidance reduction was attributed to weak performance from Automotive Experience, lower Building Efficiency segment sales and foreign exchange headwinds.
Going forward, supply issues from Japanese vehicle manufacturers, higher than expected AE start-up costs and R&D costs are expected to affect margins. With weak aftermarket battery shipments, shutdown of Shanghai plant, soft demand in residential HVAC and lowered European industrial vehicle production, near-term margin recovery is unlikely. The company is trading at a premium to its peers. I don't think JCI warrants a premium given the string of company-specific operational issues including poor execution. I recommend a sell on the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.