Ken Fisher is a billionaire fund manager managing ~$33 bn worth of equity assets through his investment advisory firm Fisher Investments. I usually scan the top picks of renowned fund managers in order to find potential investment opportunities. I scanned top 15 holdings of Fisher Investments for long ideas and here are the five companies I found most interesting.
Anadarko Petroleum Corporation
General Electric Co
Exxon Mobil Corp
Source: 13F filing
I like the growth potential of Baidu and General Electric's late cycle positioning. Vale and Exxon are good long term bets while Anadarko's resource potential looks interesting. Here's is the key investment arguments for each of these stocks.
Anadarko Petroleum Corporation is an independent oil and natural gas exploration and production company. As of December 31, 2010, it had 2.4 billion barrels of oil equivalent of proved reserves. Anadarko's portfolio of assets includes positions in onshore resource plays in the Rocky Mountains region, the southern United States and the Appalachian basin.
Anadarko operates in three operating segments: oil and gas exploration and production, midstream, and marketing. Anadarko's EPS forecast for the current year is $3.93 and next year is $5.05. According to consensus estimates, its top line is expected to grow 2.50% in the current year and 13.60% next year.
Anadarko is one of the best exploration picks among large cap U.S. oil and gas stocks. The company has lined up a multi-year backlog of exploration potential across three major provinces: the U.S. Gulf of Mexico, the West African Atlantic Transform margin and East Africa. Any single discovery in these can significantly move the needle for the stock and cause substantial upside.
In addition, the company has a robust domestic asset base and its discovered resources have an associated value of around $42 per share. The current macro environment with high oil prices and low valuation of oil and gas stocks provides a unique opportunity for investors to buy good companies in the sector and Anadarko definitely has an attractive risk/reward ratio.
Baidu.com Inc. is the #1 Internet search provider in China, with a focus on Chinese web pages. The company generates the majority of its revenue through pay-per-click advertising and customized search solutions.
Baidu is still in the early stages of the online advertising boom in China and is expected to benefit from the increased online ad budget allocated by traditional advertisers. Many large customers now see Baidu's search marketing platform as a more effective brand-building medium. With new investments in technology, its contextual ad network is expected to pick up momentum. Despite a slowdown in SME demand, strength in large advertisers will be the major growth driver for 2012.
Further, Baidu's strategy for mobiles indicates a 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 handset companies to pre-install Baidu Yi, a mobile OS. Also, with Baidu maps -- users on mobile increasing by 10-fold in 2011-- Baidu is set to capture market share and hold a dominant position similar to its position in the 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 the near term and the long term is expected to be solid.
General Electric is another interesting long candidate. GE has a dividend yield of 3.4% and a payout ratio of 52%. I like GE because of its late cycle portfolio positions, which will help it in outperforming its peers over the balance of the cycle. In particular, acceleration in the energy and aviation end market is likely to help GE achieve the higher end of its 5%-10% core growth guidance. Better energy pricing is also likely to help GE's operating margins. In addition to good growth prospects in its industrial business, GE Capital can also provide significant upside for the stock given its ~$7bn earnings run rate and >$25B in potential dividends over three-four years.
Vale S.A. has a dividend yield of 6.00% and a payout ratio of 38%. Vale S.A. ADR is a global diversified mining company with headquarters in Brazil. It is the second largest metals and mining company in the world, the largest iron ore producer (about 300 million tonnes in 2010), and one of the largest nickel producers. It also has exposure to copper, fertilizers, coal, steel and cargo transportation.
Despite demand slowdown in China, volatile pricing and cost pressures, Vale continues to perform well. Vale's iron ore business continues to remain solid driven by growth in iron ore and pellet volumes.
Vale is the largest and the lowest cost, global iron ore producer and with continued focus on new projects including Carrajas and Serra Sul, it is expected to achieve further cost reduction. With a large and unparalleled iron ore base, the company's cash flow generation potential looks strong going forward. The company is doing a good job in passing on the cash to shareholders with its 6% dividend yield. I believe at the current price level, most of the negatives such as low pricing, tax litigation and higher capex are priced in and as the macro situation improves, especially in 2H 2012 with Chinese government stimulus, along with more clarity on tax litigation in Brazil, upward price revision is likely for the stock.
Exxon Mobil Corporation is the world's largest publicly-traded oil company. It engages in the exploration and production of crude oil and natural gas, and the manufacture of petroleum products as well as the transportation and sale of crude oil, natural gas, and petroleum products.
I am positive on Exxon Mobil from the long-term perspective, given its history of solid and consistent shareholder returns. Exxon is characterized by world-class assets, strong cash flow generation, low leverage, low earnings volatility and leading cash distribution to its shareholders. Looking forward in 2012, it is expected to generate the highest free cash flow yield among large-cap oil majors and return ~ 7% to the shareholders in the form of dividends and share buybacks.
Looking at its medium-term prospects, there are some major capital projects lined up until 2015 (Kearl, Kashagan Phase I and Gorgon), which are expected to drive growth. Further, with the XTO acquisition and increased natural gas production, Exxon seems to be driving out marginal operators and consolidating the natural gas industry, rationalizing long-term production. Exxon is currently trading at a P/E slightly below its historical average and I would recommend buying the stock from a medium- to long-term perspective.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.