Billionaire Ken Fisher's Top 5 Stock Picks

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Ken Fisher is a widely published money manager, a contributor to Forbes magazine for more than 27 years and the author of eight books about investing, four of which are New York Times best sellers. In 2010, he was selected by Investment Advisor as one of the industry’s 30 most influential people over the past 30 years.

Fisher is currently ranked 263 on the Forbes 400 list of richest Americans, with a net worth of $1.7 billion. As the founder and CEO of Fisher Asset Management, one of the largest investment advisory firms in US, Fisher’s stock picks beat the market in 11 of the past 14 years. He outperformed the market by 24 percentage points in 2009 and 5 percentage points in 2010.

Recently Fisher released its most recent holdings in a 13F filing. Let’s take a closer look at Fisher’s most bullish bets and decide whether it makes sense to imitate these stock picks.

Johnson & Johnson (NYSE: JNJ): At the end of last year, Fisher had $668 million invested in JNJ, making it the largest non-ETF position in Fisher's 13F portfolio (the largest two positions at the end of 2011 were two indexes: SPDR S&P 500 ETF (SPY) and iShares IBoxx Investment Grade Corporate Bond Fund (LQD). JNJ is a popular stock among hedge funds. There were 57 hedge funds with JNJ positions at the end of the third quarter. In addition to Fisher Asset Management, Warren Buffett’s Berkshire Hathaway also had more than $2 billion invested.

We like JNJ as a dividend play. Dividend stocks are great alternatives to long-term bonds, which yield around 2%. JNJ has a decent dividend yield of 3.49%, which is 75% higher than the 10-year Treasuries. The company has also been raising its dividend payouts for 49 consecutive years. It is highly likely that JNJ will increase its dividends over the next 10 years, whereas Treasury bonds’ coupon payments will stay the same. The company operates in diversified areas across the healthcare industry, including medical devices, drugs, and consumer products. It also agreed to acquire Synthes for $21 billion in late April 2011. The acquisition is expected to be closed in the first half of 2012. JNJ is a low-risk, low-volatility stock. The economic cycles have little influence on JNJ’s sales. This is not a stock that will make you rich, but it is a stock that will help you stay rich.

Oracle Corp. (NYSE: ORCL): Fisher had $517 million invested in ORCL at the end of last year. There were also more than 50 hedge funds with ORCL positions at the end of the third quarter. For example, Lee Ainslie’s Maverick Capital had $179 million invested at the end of September. Ken Griffin, Cliff Asness, Steven Cohen, and Ray Dalio were also bullish about this stock.

We like ORCL as well. The company completed its acquisition of Sun Microsystems in 2010, which transforms ORCL into a software vendor. The company has a good management team, which offset the competition from big enterprise vendors as well as small software companies. ORCL also has a strong balance sheet and healthy free cash flow. The stock isn’t undervalued compared to other tech giants, but we think tech stocks are undervalued compared to bonds and the rest of the market. Oracle has an attractive forward P/E ratio of 11.26, versus 11.78 for IBM and 10.15 for Microsoft (NASDAQ: MSFT). It is expected to grow at 12.24% on the average per year in the next five years, compared with 10.41% for IBM and 9.16% for MSFT. We are bullish about all of these stocks and have a long position in MSFT.

The other big positions in Fisher’s portfolio are Abbott Laboratories (NYSE: ABT), Schlumberger Ltd (NYSE: SLB), and PPG Industries Inc. (PPG). Fisher invested about $500 million in each of these positions, but the number of shares he owned was lower compared with that at the end of the third quarter. Also, these three stocks were relatively less popular among hedge funds compared with ORCL and JNJ. Abbott Labs has a forward PE ratio of 11 and expected to grow its EPS at a 7% rate annually over the next five years. It isn’t cheap relative its peers such as Pfizer (PFE), which has a forward PE ratio of 9.3. However, 11 is a low PE multiple for a stock that grows 7% annually.

Schlumberger has a forward PE ratio of 16.5. This is not bad for a stock that is expected to increase its EPS by 20%, but we prefer Halliburton (HAL) because of its ultra-low forward PE ratio of 9.3. Halliburton is also expected to grow its EPS by 15% this year. PPG is similar to ABT in terms of multiples. Its forward PE ratio is 12.6 and its EPS is expected to grow by 10% this year.

We think investors should stay away from Treasury bonds and invest in solid dividend stocks that yield more than 3% annually. JNJ and ABT fit the bill. We recommend these two stocks for conservative income investors. We like technology stocks. They are really attractively priced. Investors can buy Oracle, Microsoft, IBM, Apple, Dell, or a diversified portfolio of these names. We also recommend Halliburton instead of Schlumberger and we are neutral about PPG. We believe our dividend stock picks will outperform the long-term Treasuries and other picks will outperform the S&P 500 index over the next couple of years.


Motley Fool newsletter services recommendJohnson & Johnson, Microsoft and Schlumberger. The Motley Fool owns shares of Abbott Laboratories, Johnson & Johnson, Microsoft and Oracle. Fool blogger Meena has long positions in Microsoft and Dell. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure