Billionaire Ken Fisher’s Top Stocks: 4 To Buy, 1 To Avoid

By Ashish Sharma - May 3, 2012 | Tickers: APC, BIDU, EMC, JNJ, RIO | 0 Comments

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Fisher Investments is an independent investment advisory firm founded by billionaire Ken Fisher in 1979. The firm manages ~$37bn in equity assets primarily adhering to a value oriented approach. Fisher Investment recently released its 13F filing with SEC. The following were its top holdings as of 03/31/2012.

I like Johnson & Johnson, EMC, Baidu and Rio Tinto among the above stocks. However, I would like to avoid Anadarko until some clarity on its Tronox liability increases. Here is a closer look at each of these stocks.

Johnson and Johnson (NYSE: JNJ) has underperformed the broader markets and its pharmaceutical peers in the last year. There were several factors responsible for this. Some of the major ones were McNeil being hit with a Consent Decree in March on three manufacturing facilities following a number of highly publicized OTC recalls; increased generic competition for Concerta, Levaquin and Razadyne; and macro pressures which caused procedural volume dipping below historical trends.

I believe most of these headwinds are now behind the company. Johnson and Johnson is likely to see organic growth re-acceleration in 2012 driven by a robust pipeline which includes drugs like Incivo, Zytiga, Edurant and Xarelto. These launches are expected to drive solid growth and improve margins through 2012. There is also sequential improvement on McNeil's situation as J&J works through its Consent Decree with the FDA.

Further, procedural volume trends are improving as physician office visits are stabilizing. JNJ is currently trading at 11.97x 2013 consensus EPS estimate. I believe it is a good buy at the current level and its organic growth could likely act as a catalyst for the stock. The potential share repurchase following the closure of the Synthes Inc. acquisition could also provide a catalyst.

EMC Corporation (NYSE: EMC) is currently trading at a forward PE of 14.26x. I am bullish on the company given its alignment with the emerging IT trends such as Big Data, Cloud and Security. Although the company reported a slight top line miss in its recent earnings release, I believe it has lowered the bar for the rest of the year and the company can easily beat the consensus expectations going forward. Key near term drivers for the company are the high-end VMax refresh (likely to ramp up in 2HCY12); upcoming Project Thunder; and the likely improvement in HDD supply and pricing. The company continues to benefit from its leadership position in two secular growth markets -- Storage and Virtualization – and I believe it offers a good risk reward proposition at current levels.

Baidu.com Inc. (NASDAQ: BIDU) is another interesting buy among the above stocks. Although it gave lower than expected guidance in its last earnings call and the stock opened over 10% down the next day, it recovered almost all of its losses intraday. This signals that the market believes the worst case scenario is already priced in Baidu at these levels. The main reason for Baidu’s lower than expected guidance was a slowdown in advertising spends by its large customers. I believe this is a temporary slowdown in Baidu’s business similar to what happened in 2008-09. Once the macros improve, growth at Baidu will re-accelerate again and so would the upward trajectory of its stock price. China is still 4-5 years behind the U.S. when it comes to online advertising spending as a ratio to GDP. Baidu, being the top search engine with over 80% market share, will be the likely beneficiary as things normalize. Baidu is currently available at a 20x forward PE. I don’t believe it is high given its ~40% expected EPS and topline growth.

Rio Tinto Plc. (NYSE: RIO) is a leading mining company engaged in the exploration and production of iron ore, copper, aluminum and other minerals. I am bullish on the company given the near term recovery of steel production and robust iron ore and copper prices. In fact copper is my second most preferred commodity from the medium to long term perspective after natural gas (Please refer to my previous article for a bullish thesis on natural gas). Key bullish arguments for copper prices include tight financing conditions for junior/mid tier producers, supply challenges caused by declining grades, infrastructure constraints globally, and robust demand.

In addition to robust commodity prices medium term asset divestments and the potential for higher shareholder returns are also likely to be an upside catalyst for the stock. The company is trading at just 6.40x forward earnings which appear cheap and I recommend buying the stock. Investors should keep a close eye on the Chinese macro economy and steel data for predicting the near term stock movements.

Anadarko Petroleum Corporation (NYSE: APC) is one stock in the above list which I would like to avoid. Although I like the company from operational perspective, its Tronox liability puts me on the side lines. Tronox case is likely to go on trial around mid-May and can drag on for a year or two. There is upside potential if the company continues its success with its exploration programs. However it is balanced by the downside risk based on the potential of a large loss related to the Tronox litigation.

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