Billionaire Ken Fisher Likes These Cheap Stocks
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“Buy value stocks” is common investment advice, but it’s often difficult to tell whether a low-priced stock is that way because the market doesn’t recognize its potential or because the market has in fact accurately determined that the company is in decline. We thought that we would look at the list of stocks that billionaire Ken Fisher’s Fisher Asset Management reported owning in its most recent 13F filing (see the full list of Fisher's stock picks) and take a closer look at those meeting traditional value criteria. Here are the five largest holdings in Fisher’s portfolio with trailing and forward P/E multiples of 13 or lower:
Cisco Systems (NASDAQ: CSCO) was one of Fisher’s top five stock picks, as the fund increased the size of its position by 77% during the quarter to a total near 38 million shares. The company recently reported that in its first fiscal quarter (which ended in October), earnings were up 18% from a year earlier, but the market apparently thinks that these growth rates -- or any growth at all really -- are quite short lived, as the trailing P/E is only 13. Renaissance Technologies, founded by billionaire Jim Simons, initiated a position in the stock during the third quarter. We think that it’s worth taking a closer look at.
Fisher also bought shares of American Express (NYSE: AXP), closing September with close to 12 million shares in its portfolio. While the valuation looks cheap (the trailing and forward P/E multiples are 13 and 12, respectively), the company’s business was about flat last quarter versus the third quarter of 2011. American Express was one of hedge funds’ ten favorite financial stocks during the third quarter according to our database of 13F filings, but peer Capital One made the list as well. Discover is another value prospect, and of course Visa and Mastercard represent the credit services business as well. Those stocks might be better buys.
The most popular stock among hedge funds (find the rest of the top ten), Apple (NASDAQ: AAPL) was another of Fisher’s favorites. The recent decline in the stock has placed Apple at only 12 times trailing earnings, even though at least in recent quarters its growth rate has been good. Despite competition from Google and Amazon, it has a strong position in growing consumer technology markets. Though we’re not as bullish as the analyst consensus (the five-year PEG ratio is 0.5), we still think that Apple qualifies as a value stock.
Fisher reported owning almost 19 million shares of Wells Fargo & Company (NYSE: WFC), which was another stock on the top ten list. Wells Fargo may trade at a premium to the book value of its equity (the P/B ratio is 1.2) at a time when many other large banks are priced at a discount, but it has gotten a good enough return on these assets that the trailing P/E is only 10. In addition, Warren Buffett has been buying even more shares of the bank (see Warren Buffett's favorite stocks). We’re not sure that Wells Fargo is the best buy of the bank stocks, but we certainly wouldn’t be short it anymore either.
JPMorgan Chase (NYSE: JPM) joined Wells Fargo in the portfolio; Fisher more than doubled its stake to over 13 million shares. As we mentioned, a number of large banks are currently priced at less than book value: JPMorgan Chase is one of these, with a P/B ratio of 0.9. It’s also cheaper than Wells Fargo in terms of P/E multiples, with a trailing P/E of 9. Billionaire Louis Bacon’s Moore Global Investments initiated a position in the stock during the third quarter. We think that, especially with earnings rising, JPMorgan Chase offers a good blend of value and stability and is more attractive than Wells Fargo or other industry peers.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in AAPL. The Motley Fool owns shares of Apple, JPMorgan Chase & Co., and Wells Fargo & Company. Motley Fool newsletter services recommend Apple, American Express Company, Cisco Systems, and Wells Fargo & Company. 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!