Editor’s Note: Related tickers: Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE), Wells Fargo & Co (NYSE:WFC), American International Group, Inc. (NYSE:AIG), HSBC Holdings plc (NYSE:HBC), JPMorgan Chase & Co. (NYSE:JPM)
Billionaire Ken Fisher, a long-running columnist for Forbes, also runs the asset manager Fisher Asset Management. We track this fund’s activities alongside those of hundreds of hedge funds and other notable investors, using their quarterly 13F filings to help us develop investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We think it can also be useful to screen managers’ top picks, including by the traditional value criteria of low earnings multiples, to see if they have come up with any interesting picks. Read on for our quick take on Fisher’s five largest holdings as of the end of March in stocks with both trailing and forward P/Es of 13 or lower and compare these picks to those in previous filings.
The largest single-stock position per the 13F was Fisher’s close to 31 million shares of Pfizer Inc. (NYSE:PFE). In addition to being priced decently in terms of its earnings multiples- the trailing and forward P/Es are 13 and 12, respectively- Pfizer Inc. (NYSE:PFE) pays a high dividend yield of 3.5% at current prices (as many other large pharmaceutical companies do). We are a bit concerned, however, that its last quarterly report showed a decline in sales; while earnings were up, growth in net income due entirely to margin increases is not sustainable over the long term.
The fund increased its stake in Apple Inc. (NASDAQ:AAPL) by 58% between January and March to a total of 1.5 million shares. Apple Inc. (NASDAQ:AAPL) regained its place as the most popular stock among hedge funds during the first quarter of 2013 (see the full top ten list) from American International Group, Inc. (NYSE:AIG). The current market capitalization of about $410 billion in 10 times Apple Inc. (NASDAQ:AAPL)’s trailing earnings, and a considerable share of that market cap consists of the company’s cash and cash equivalents. Therefore, the market is pricing in continued drops in Apple Inc. (NASDAQ:AAPL)’s net income and so we’d watch for any signs that the business is stabilizing.
HSBC Holdings plc (NYSE:HBC) was another of Fisher’s cheap stock picks as the filing disclosed ownership of over 12 million shares. The bank trades at 11 times earnings, whether we consider its trailing results or consensus forecasts for 2014, though the sell-side is quite bullish over a longer time frame with HSBC Holdings plc (NYSE:HBC)’s five-year PEG ratio being 0.6. In fact, the bank’s net income did more than double in its most recent quarter compared to the same period in the previous year, though of course that growth rate will slow going forward.
According to the 13F, the fund slightly increased its holdings of JPMorgan Chase & Co. (NYSE:JPM) during the quarter, closing March with just under 13 million shares in its portfolio. The rise in JPMorgan Chase & Co. (NYSE:JPM)’s stock price- it is up 60% in the last year- has pulled its market cap essentially even with the book value of the bank’s equity, though the stock is still quite cheap in earnings terms at a trailing P/E multiple of 10. With net income also up here, and with the 2.8% dividend yield similar to Wells Fargo & Co (NYSE:WFC)’s, we think that both banks are worthy of consideration by value investors.
In fact, all three of Fisher’s financial picks look at least somewhat interesting- HSBC Holdings plc (NYSE:HBC) will not able to grow its earnings as quickly in the future as it has, but the valuation is low enough that it does not need to do much in order to prove undervalued. Apple Inc. (NASDAQ:AAPL) also could be interesting if it makes better use of its cash hoard or the decline in earnings slows enough to “beat expectations” of a significant decline.
Disclosure: I own no shares of any stocks mentioned in this article.
