Fisher Investments is a Woodside, California-based investment advisory firm founded by billionaire Kenneth Fisher. Fisher Investments manages $33 billion worth of equity assets, primarily adhering to a value-oriented approach, managing U.S., international and global portfolios.
In this article, I take a closer look at the five tech stocks (see table below) in which Fisher Investments has significant holdings. I believe Baidu and EMC are good growth stories, while Intel and IBM offer the Growth at Reasonable Price (GARP) proposition. Amazon has the highest PE among these stocks and appears overvalued. Hence I will avoid it.
Shares Held - 12/31/2011
International Business Machines Corp.
Source: 13F filing
Below, I detail company-specific discussions on each of the stocks:
Baidu is the market leader in the Chinese Internet search market, with an 80% market share. The business has high barriers to entry and even Google (GOOG) wasn't able to meaningfully challenge Baidu's dominance in the past. Going forward, I believe Baidu can continue to post 50% plus growth for the next several years. China's total online advertising spend to GDP ratio is still five to eight years behind the U.S.
There is a secular tailwind for the leading search company, Baidu, which will be the likely beneficiary as the normalization occurs. According to consensus estimates, Baidu is expected to post EPS of $4.59 in the current year and $6.46 in the next year. It is trading at 21x forward P/E, which is reasonable given its 50% growth rate.
EMC Corporation has strong fundamentals, and it reported impressive profitability across all its business segments in the last quarter. Going forward, IT spending by various companies is expected to be a primary growth driver for EMC. For 2012, EMC is expecting a modest 3%-4% yearly growth in IT budgets. I believe this guidance is conservative, given the management's history. While eurozone IT spending is expected to be flat, I am of the opinion that emerging markets in Latin America and Asia could very well grow above expectations. Data growth and virtualization needs are the key areas that are expected to outgrow overall IT industry spending.
EMC is the market leader in the storage space, with over 25% of the market share. There is further room for growth as the proliferation of structured and unstructured data is expected to drive demand in storage capacity. Increased data center capex by companies such as Apple (AAPL), Google and Facebook (FB) indicate a positive trend in cloud computing and related services.
After significant product and channel investments in the past year, EMC's growth will also benefit from product refreshes in all of its segments and new product introductions. EMC has established a stronghold in all the market segments in enterprise storage, with VMAX gaining traction in the high end. Similarly VNX replaced the legacy CLARiiON systems in the mid-range markets, while VNXe is expected to help expand its footprint in the lower-end markets. Further, EMC officially released its server flash product VFCache (dubbed Project Lightning) in the first week of February. I believe this is another potential growth opportunity for EMC, which it can utilize by integrating it with its existing hardware and software solutions including VMware.
EMC's product breadth with continued updates and market leadership in storage provides a strong foundation for healthy growth in 2012. I recommend a buy on the stock from the near- to medium-term perspective.
Intel is the world's largest supplier of semiconductor chips. The company designs and manufactures microprocessors, boards, and semiconductor components that are used in computers, servers, and networking and communication products. The company is the world's largest supplier of microprocessors, with a worldwide market share of more than 75%.
Intel reported good Q4 results and gave better-than-expected guidance for 2012. The enterprise and emerging market strength pushed its PC sales, while strong data traffic drove Data Centre revenue. Going forward, improving trends in Cloud and High Performance Computing are expected to drive server processor growth. The company's recent QLogic acquisition has increased its breadth of product line and strengthened its position in the super computing market.
Intel's Data Centre Capex guidance further supports the server processors' growth and upside potential to its margins in 2012. With new product cycles (Ivy Bridge, Romley and Medfield) and investments in its manufacturing and R&D capabilities, Intel is expected to gain market share against its competitor Advanced Micro Devices, Inc. (AMD).
Intel is committed to returning cash to its shareholders, with a healthy 3.1% dividend yield and $4 billion in stock repurchases last year. It has authorizations for a further $10 billion repurchase. Even with modest PC trends, the server market growth provides considerable upside potential for its near-term earnings and multiple expansion.
IBM is a consistent performer, and has outperformed the S&P 500 in six out of the past seven years. It has doubled its profit in the last decade and has steadily expanded margins by over 800 bps, following a strategy to focus on higher margin enterprise software/ services/mission-critical hardware business, while divesting commodity businesses (PCs, printers, and hard disk drives). It is one of the most defensive tech vendors, and its high visibility annuity business accounts for more than 50% of revenue and 70% of profits. Last year, Warren Buffet initiated a position in the company and IBM rightly fits the "Buffet Criteria" of a good business available at a reasonable valuation.
Amazon is one stock in the above list that I would like to avoid. I find Amazon's stock pricey at 73x forward earnings. I understand the growth potential and current investment mode of Amazon (which is keeping earnings depressed), but the current price seems to be already pricing in a lot of positives. Also, I don't agree that growth in international markets will come easy for Amazon without any significant competition from the local players.