Woodside, CA-based Fisher Asset Management, founded by Chairman & CEO Kenneth Fisher, manages $37.5 billion in 13-F assets per its latest March 2011 quarter filing with the SEC. Mr. Fisher, an investment legend, has also earned a place in Forbes 400 list of richest Americans, with a 2010 net worth estimated at $1.6 billion. He is the author of a monthly column in Forbes magazine, an author of several books, and was named to Investment Advisor magazine's "30 for 30" list of the 30 most influential people on the investment advisory business over the last 30 years. His 13-F portfolio is well-diversified into over 500 positions, with about 80% deployed in large-caps, another 10%-15% in mid-caps and the remaining 5%-10% in small-cap equities.
We analyzed Fisher's equity holdings in its Q1 2012 13-F to determine its highest conviction bets, selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are its high conviction bullish positions, that are also trading undervalued compared to the peers in their group, and also have a high dividend yield relative to their peers (see Table):
Banco Santander SA (STD): Madrid-based Banco Santander SA is a global holding company for Banco Santander and other banks providing a wide range of banking and financial products via operating over 14,000 branches in Europe, Latin America, U.K. and U.S. Fisher added $46 million in Q1 to its $128 million prior quarter position. Other leading institutions with large bullish bets on STD in Q4 (the latest quarter for which most institutional filings are available) included Bank of America adding 6.2 million shares to its 11.3 million share prior quarter position, and JPMorgan Chase & Co. adding 2.6 million shares to its 4.1 million share prior quarter position.
STD shares are down over 15% YTD, after a crippling 56% loss in the prior two years, and are currently trading within striking distance of their all-time lows from early 2009. With a dividend yield of 14.6%, well above the average of 2.7% for its peers among foreign banks, and trading at a current 6.0 P/E and 0.6 P/B compared to averages of 8.9 and 0.9 for its peers, the bank looks like an attractive buy. However, at issue are the massive losses in its home base on Southern Europe, with earnings already down from a peak of $1.79 in 2007 to $1.08 in 2011, and projected to further fall to 98c in 2013.
Vale SA (VALE): Rio De Janeiro, Brazil-based VALE is one of the world's leading mining companies, and specializes in the mining of iron ore and pellets, manganese, alloys, gold, copper, potassium, and kaolin. Fisher added $242 million in Q1 to its $349 million prior quarter position. Other leading institutions with large bullish bets on VALE in Q4 (the latest quarter for which most institutional filings are available) included Edinburgh-based esteemed investment management firm Baillie Gifford, with over $100 billion in assets under management, adding 4.2 million shares to its 20.3 million share prior quarter position, and San Francisco, CA-based mutual fund company RS Investment Management, with $10.5 billion in 13-F assets at the end of Q4, adding 1.5 million shares to its 1.9 million share prior quarter position.
VALE is undervalued, trading at 6.4 forward P/E and 1.5 P/B compared to averages of 20.9 and 2.2 for its peers in the miscellaneous mining group, while earnings are projected to fall from $4.23 in 2011 to $3.59 in 2013. Also, it has a dividend yield of 5.0% compared to the 2.0% average for its peers. The stock is up 6% YTD, but that's after a 38% fall in 2011; that while profits bolted up from a pre-recession level in the $2.20's in 2007-08 to $4.23 in 2011.
The P/E contraction is based mostly on the assumption that Chinese growth and the demand for iron ore will flatten after its earlier torrid growth, when it quintupled between 2000 and 2012. But it is likely that Chinese growth may continue unabated, albeit at high single-digit rates, that world demand may pick up some of that slack, that pricing remains strong, and that profits get a boost from lower costs tied to VALE's use of its very large ore carrier ships.
The following are additional companies that Fisher is bullish about, accumulating shares in them in Q1, and that are also trading undervalued compared to their peers (see Table):
- Rio Tinto Plc (RIO), a U.K.-based company with global interests in mining that is engaged in mining for aluminum, borax, copper, gold, iron ore, lead, silver, tin, zinc, uranium, titanium, diamonds, talc and zircon, in which it added $311 million in Q1 to its $327 million prior quarter position;
- EOG Resources (EOG), engaged in the production and marketing of crude oil and natural gas in the U.S., Canada, Trinidad, U.K. and China, in which it added $288 million in Q1 to its $12 million prior quarter position;
- Freeport McMoran Copper & Gold (FCX), engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America, in which it added $279 million in Q1 to its $249 million prior quarter position;
- Andarko Petroleum Corp. (APC), one of the world's largest independent oil and gas exploration and production companies, with a majority of its reserves located in the U.S., in the mid-continent in KY, OK and TX, offshore in the Gulf of Mexico, and in AK., in which it added $266 million in Q1 to its $348 million prior quarter position;
- Sanofi (SNY), a French developer of pharmaceutical products, vaccines and integrated healthcare solutions targeting various therapeutic areas, in which it added $101 million in Q1 to its $442 million prior quarter position; and
- Medtronic Inc. (MDT), that develops implantable cardiac rhythm devices, spinal implants and other device-based medical therapies, in which it added $82 million in Q1 to its $244 million prior quarter position.
The following are Fisher's high conviction bearish picks, based on its Q1 selling activity (see Table):
- Halliburton Company (HAL), that provides a variety of equipment, and maintenance, engineering and construction services to the oil and gas exploration and production (E&P) industry, including reservoir completion and drilling services, in which it cut $142 million in Q1 from its $146 million prior quarter position;
- Norfolk Southern Corp. (NSC), that via Norfolk Southern Railway operates a 20,000-mile railroad in 22 states and D.C., in which it cut $83 million in Q1 from its $160 million prior quarter position;
- Swiss drug developer Novartis AG (NVS), in which it cut out completely in Q1 its $42 million prior quarter position;
- Southern Copper Corp. (SCCO), that is one of the largest integrated copper producers in the world, and is engaged in the mining, exploring, producing, smelting and refining of copper and other minerals in Peru, Mexico and Chile, in which it cut $14 million in Q1 from its $20 million prior quarter position; and
- Merck & Co. (MRK), a research-driven global pharmaceutical company engaged in developing prescription drugs to treat asthma, osteoporosis, cardiovascular, metabolic and other disorders. It also develops vaccines, biological therapies, animal health, and consumer products, in which it cut $11 million in Q1 from its $12 million prior quarter position.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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