By Brian Tracz
Billionaire Ken Fisher is a prolific columnist, hedge fund manager, and innovator in the world of finance and portfolio management. As CEO of Fisher Asset Management, Fisher has developed an investment approach and philosophy that cites supply and demand as the primary movers of markets. Particularly, he believes that interpreting and possessing information that other market participants do not have is key to a successful investing approach. Fisher developed the notion of a price/sales ratio in the 1980s and has also published academic articles in behavioral finance.
Fisher Asset Management recently filed its latest 13F regulatory filing disclosing its equity holdings from the third quarter (view our database of past filings here). Valued at $36.1 billion, this portfolio contains a number of interesting large-cap stocks for investors looking for long-term capital appreciation and income. This article will take a look at the portfolio's five largest equity holdings after its two largest holdings-an iShares trust fund holding (valued at $888 million) and the Fisher Enhanced Big Cap Growth fund (valued at $1 billion).
The first thing to notice is the fund's new number one stock pick-Pfizer Inc. (PFE). Fisher's holdings total $796 million as of September 30. Pfizer has been on a roll this year, with shares up 20 percent year-to-date. This large-cap pharmaceutical company has long been of interest to income investors due to its 3.4 percent dividend, and the company has steadily paid a dividend since the late 1980s. Aside from that, though, value investors should also take a look at Pfizer. Shares are trading at a mere 11 times forward earnings, quite cheap for the industry. The company recently lost its exclusive rights to Lipitor, causing many analysts to look more closely at the company's drug pipeline and, in turn, to tag Pfizer with a discounted price. However, with the impending sale of its nutritional unit to Nestle SA (OTCPK:NSRGY) for $12 billion early next year, along with the anticipated spin-off of its animal pharmaceutical unit valued at $3.8 billion, the company is focusing its strategy and makes for an attractive long-term value investment.
Fisher also doubled his holdings of Cisco Systems, Inc. (CSCO) since the end of the second quarter. The company's shares are trading at 9 times forward earnings, making it another interesting value idea. Bandwidth usage and networking solutions are the major areas of Cisco's business, areas which have positive secular trends. As S&P notes, the company's primary source of advantage comes from new product releases, particularly in the data center, collaboration logistics, and wireless segments. After backing out of the Flip camera business, Cisco has realigned itself outside of the consumer electronics division, which had been cutting into its profits in the face of fierce competition in the space. With a 5-year P/E range of 10 to 29, Cisco is a tech stock that looks undervalued and that touts a 3 percent dividend.
Another new member of Fisher's top ten is International Business Machines Corp. (IBM), whose shares fell about 7 percent the week it announced its disappointing third quarter results. Analysts had a number of different ideas regarding the company's slide, most of which cited temporary factors. IBM was unable to sign as many enterprise deals as was anticipated in the United States, though business in Europe and Asia held steady. Additionally, many clients were holding out for new products that were yet to be released. International Business Machines Corp. is still significantly out-competing Hewlett-Packard Company (HPQ) in the enterprise space, though Oracle Corporation (ORCL) remains a major threat.
Another healthcare company, Johnson & Johnson (JNJ) remains in Fisher Asset Management's top five holdings. The healthcare giant exceeded analyst expectations for third quarter earnings, the first time it has done so in a year. The company reported earnings of $1.25 per share compared to the consensus estimate of $1.21. Like Pfizer, Johnson & Johnson stands to benefit substantially from an up market, though Johnson & Johnson is trading at 13 times forward earnings-pricier than that of Pfizer. However, there is quite a bit of hedge fund interest in the company; Warren Buffett's Berkshire Hathaway holds nearly 1 percent of its portfolio in the company, according to its latest 13F filing (view other funds with positions in Johnson & Johnson).
Also steady in Fisher's top five is General Electric Company (GE). General Electric is, for many, the go-to company for measuring the health of the economy, so this company, whose shares are trading at three-year highs, is sensitive to economic downturns. Like Pfizer and Cisco, GE boasts a 3 percent dividend. Shares have been inching upward, but there are still some lingering concerns that the company could deliver underwhelming results from its China and Europe segments. We remain cautious about present valuation levels; according to the usual valuation metrics (price/sales, price/book, price/earnings), the company is roughly trading at fair price.
Ken Fisher's portfolio is well-worth tracking if you are a large-cap or income-focused investor. The large-cap companies in Fisher's portfolio reflect his focus on finding value in large-cap giants.