5 Big Tech Picks From Billionaire Ken Fisher
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Ken Fisher is one of the longest running columnists at Forbes – over 26 years – and is also a billionaire fund manager. Fisher founded Fisher Investment Management in 1979 and uses a global, top-down, dynamic asset allocation strategy. In looking at Fisher’s most recent quarterly 13F filing – which reveals the majority of the public securities owned by the firm – we have identified a key underlying theme: he has an affinity for tech stocks (check out all of Ken Fisher's latest bets here).
Fisher's top tech stock is Cisco Systems (NASDAQ: CSCO), which is his 5th largest 13F holding. Cisco is expected to see improvement in the U.S. and Asia on new products, including expansion into cloud software. Despite its hopeful market growth in the Far East, Cisco plans to use acquisitions as a key growth avenue, including a recent $6 million investment into a venture capital fund.
Although Cisco’s overall expected growth is less than stellar, it remains one of the better value plays with a $6 billion software business that is expected to grow by 100% over the next three years. Cisco trades at only 13x earnings, below other top tech companies like Oracle (16x) and SAP (22x). Cisco also trades at only 9.5x forward earnings, one of the lowest multiples amongst Fisher’s five tech stocks. Billionaire and founder of Renaissance Technologies Jim Simons is another top fund owner of Cisco after taking a new position last quarter (see Jim Simons' top picks).
Apple (NASDAQ: AAPL) made up Fisher’s 10th largest 13F holding after his firm increased their stake almost 1,000% last quarter. Despite market saturation concerns, Apple is still expected to continue its industry leading sales growth. Revenues should be up 25% in fiscal year 2013 following a robust holiday season that includes new iPhone and iPad products. Margins are also expected to expand as iPhones and iPads continue to grow their scale, and production becomes more efficient.
Apple has robust cash flow generating capabilities, having built up over $45 billion in cash that can easily fund its 2% dividend yield or key acquisitions. Compared to Fisher’s other tech stocks and other tech hardware companies, Apple is one of the cheapest in the business. The tech giant trades at only 9x forward earnings and has one of the best long-term expected EPS growth rates (21%). This puts Apple’s PEG ratio at 0.5, making it a deep value-oriented investment opportunity.
Amazon.com (NASDAQ: AMZN) is one of the faster growing tech stocks of Fisher’s 13F portfolio. Sales should be up 28% in 2013 after an expected advance of 29% in 2012. Driving this robust sales growth and the expected 33% annual long-term earnings growth, will be market share gains from brick-and-mortar retailers and international expansion. Helping to boost its core e-commerce business will be Amazon’s Kindle tablet, which has managed to see robust consumer acceptance, doubling tablet market share in 3Q from 5% (2Q) to 10% according to IDC. Trading at over 140x forward earnings, Amazon is not one of the value plays in the tech industry, but is still a reasonable growth investment.
Microsoft (NASDAQ: MSFT) is another top tech pick of Fisher’s, but expects somewhat more modest growth, including 8.5% sales growth in FY2013 and 7% in FY2014. Microsoft has a diverse product portfolio driving its growth, which includes Windows 8 and Windows Live. This tech giant is also continuing to seek growth via acquisitions with two recent purchases being StorSimple and PhoneFactor.
Now, it's clear that Microsoft is looking to rebrand itself with the release of higher growth products, and shares could provide a solid 'growth at a reasonable price opportunity' (GARP) as new versions of Windows, Microsoft Office, and its Surface tablet hit the markets. Microsoft trades at one of the lowest P/E ratios (15x) and the lowest forward P/E (8.5x) of Fisher’s top five tech picks.
Last but certainly not least, Google (NASDAQ: GOOG) should see revenues up 38% by the end of this year and 16% in 2013. The weakness in Google’s shares of late includes the integration risk related to its 2012 Motorola acquisition. Although the revenue capabilities of the acquisition remain uncertain, Google’s core business growth remains strong; it set a record for U.S. search engine market share in October, at 66.9% according to comScore.
Motorola will become a greater part of Google’s future growth as it manages to utilize the acquired patent portfolio to protect its Android franchise. Google trades at the upper end of the P/E range for our five stocks at 22x earnings and might be less of a GARP opportunity with a 13.5% expected long-term EPS growth rate. Ken Fisher held over $540 million worth of the stock at the end of last quarter, good for 1.5% of his 13F portfolio. Since the start of the year, Fisher has upped his stake in Google by approximately 3%, in terms of total shares owned.
To recap: we believe that Fisher has found some value opportunities in what is normally a high-growth industry. Fisher’s five tech stocks include a span of various industries, from various technology products to services. Cisco is a large and relatively ‘unsexy’ tech stock that is sometimes underappreciated, and it appears this is still the case given its low P/E. Apple has seen unwarranted pressure – down almost 20% over the last three months – that has made it a an even greater value play. Amazon’s stellar growth rate does not make up for the fact that it trades well out of line on a valuation basis. Microsoft and Google are Fisher's two search providers, with various other segments that can boost revenues higher.
Four of Fisher's top tech bets are also on our list of tech stocks loved by hedge funds (see our entire Top Ten here).
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Cisco Systems, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!