Ken Fisher's Recent Picks

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

Ken Fisher, an American investment analyst is part of the Forbes 400 list of world billionaires. He owns a money management firm, Fisher Investments, and as on Dec'12 the total funds managed under his firm was ~$34 billion. In my article today I have picked up three stocks from Ken Fisher's portfolio in which he invested recently in the last quarter. Although all these three stocks haven't performed well in their returns, however with their strong balance sheets they have managed good dividend yields for the shareholders. All the three companies have struggled in 2012 with one or the other segment and thereby not performing as expected. But the investment seems sensible as I anticipate good upside potential in the stocks in 2013 as their long-term fundamentals remain intact. Let's discuss each of these stocks in detail.

<table> <tbody> <tr> <td> <p><strong>Companies</strong></p> </td> <td> <p><strong>5 Year Average Dividend Yield</strong></p> </td> <td> <p><strong>Forward Annual Dividend Yield</strong></p> </td> <td> <p><strong>Stock Movement 2012 (~)</strong></p> </td> </tr> <tr> <td> <p><strong>Education Realty Trust</strong> <span class="ticker" data-id="207745">(NYSE: <a href="http://caps.fool.com/Ticker/EDR.aspx">EDR</a>)</span></p> </td> <td> <p>6.4%</p> </td> <td> <p>3.8%</p> </td> <td> <p>+5%</p> </td> </tr> <tr> <td> <p><strong>Mack-Cali Realty </strong> <span class="ticker" data-id="203134">(NYSE: <a href="http://caps.fool.com/Ticker/CLI.aspx">CLI</a>)</span></p> </td> <td> <p>7.10%</p> </td> <td> <p>6.8%</p> </td> <td> <p>-1.10%</p> </td> </tr> <tr> <td> <p><strong>Harris Teeter</strong> <span class="ticker" data-id="205197">(NYSE: <a href="http://caps.fool.com/Ticker/HTSI.aspx">HTSI</a>)</span></p> </td> <td> <p>1.5%</p> </td> <td> <p>1.6%</p> </td> <td> <p>-9%</p> </td> </tr> </tbody> </table>

Source: YahooFinance

Education Realty Trust's leasing performance has remained slightly dull in the lease term 2012-13 with occupancy dropping to 90.5% (down from 94.7% last year). However, this was clearly offset by the ~5% increase in the rental rates. The stock price reacted accordingly with lots of ups and downs, thereby giving an overall return of just ~5% in 2012. The poor leasing results were mainly because of its three properties, Southern Illinois University (enrolment declined 5%), North Carolina State University (enrolment declined 8%), and Georgia Southern University (enrolment declined 1%).

Looking at the brighter side, Education Realty's portfolio quality looks impressive for future growth. The company has five properties with a total of ~2700 beds and a development value of ~$190 million scheduled for 2013 delivery. Moreover, it has another five new projects in the pipeline with ~2516 beds and development value of ~$153 million for 2014. The majority of these properties are on campus locations which would help the company in achieving higher occupancy rates. I expect these properties to operate at a yield of ~7-8%.

Overall, I feel the company's long term prospects remain stable at the moment. The company is adding high-quality assets to its portfolio as well as disposing of certain assets that do not generate adequate returns. This is a strong reason why Fisher has shown interest in this stock this quarter. Also, not to forget the company's stable balance sheet position which will always help it in returning higher value to its shareholders.

Another pick for Fisher's recent buys is Mack-Cali Realty Corp's which deals in commercial real estate properties. Its stock has disappointed investors in the last year with a negative return of 0.23%. This was mainly because the overall leasing conditions were challenging for suburban office properties which constitute ~89% of its total portfolio. As a result, the company is venturing into various other sectors with a new focus. To enter into the currently booming apartment sector, Mack-Cali acquired real estate development assets of Roseland Property for ~$135 million in Oct '12. I feel this acquisition would be a game changing opportunity for Mack-Cali to develop its non-income producing properties. Over the years, Roseland has built its portfolio with luxury apartments and mixed-use projects in areas like Morrristown, Weehawken, etc. The deal will provide the infrastructure to Mack-Cali to build in multi-family residential communities. Under this acquisition, the company will also acquire Roseland's interests in 11 operating residential properties and 13 other projects that are under development plus various other land proposals. This would provide a huge strength to Mack-Cali to gain out of two important real estate segments and will be a key component for its future growth.

On the whole, I feel the suburban office market recovery in the US would drive higher occupancy rates and rent revenues for Mack-Cali. And, the new classes of real estate could drive the revenues in the next 2-3 years.

Along with these two real estate investment trusts, Fisher also bought shares of a supermarkets chain Harris Teeter. The company reported its FY2012 results with sales up by ~5.8% y/y at ~4.54 billion, driven by comparable store sales which were up by ~4% y/y. However, the operating profit was down by ~4.2% to ~$171 million because of higher SG&A expenses and other incremental costs from the Lowes Food agreement. In 2013, the company continues to focus on its growth via new store expansions. It includes 12 new stores and 9 major renovations in 2013. It will also include replacement stores for those which may be shut down because of the under-performance. This expansion plan is expected to increase the retail square footage by around 5.4%.

In 2012, the company also introduced a new gourmet concept stores known as the 201 Central. These stores include extensive variety of wine, beer, and cigars along with specialty & prepared foods and other international foods. It will further include equipment for brewing of beer and wine at homes. These stores will have expanded customer services such as wine consultants, catering, events coordination, party rentals etc. I believe this new format which is targeting at special occasions shopping has a huge potential to increase the market share for Harris Teeter.

To sum it up, I feel these three stocks have an upside potential in their stock prices in 2013. Both the real estate companies will be benefited from the improving macro conditions and their impressive portfolio in the long run. On the other hand, the supermarket chain Harris Teeter’s revenue growth will be improved with its innovative concept store and the existing store expansions. I recommend a buy rating on these three stocks.



madhudube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!

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