Billionaire Ken Fisher’s Top Healthcare Stock Picks

At the beginning of September, when the U.S stock markets were in turmoil, Ken Fisher of Fisher Asset Management asserted that the August correction would be “over just as fast as it began”, and he was quite right indeed. Most reputable hedge fund managers have the ability and skills to view financial markets in a totally different way than an average investor. Although they may not turn out to be accurate on all occasions, they still have the necessary set of skills that allow them to picture financial markets as an integrated system and foresee their future state. Fisher Asset Management had a busy third quarter as many other hedge funds in the industry did, as it initiated 140 new positions and sold out of 55 positions during the three-month period. The market value of Ken Fisher’s equity portfolio declined to $48.00 billion from $51.45 billion quarter-over-quarter, mainly owing to the disappointing returns of most equities. The Insider Monkey team has already discussed Ken Fisher’s top stock picks, and top tech and finance stocks at the end of the third quarter, so in this article we will discuss Fisher Asset Management’s top healthcare stock picks at the end of the third quarter.

Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spinoffs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012, returning 102% (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.

#5 Bayer AG (ADR) (OTCMKTS:BAYRY)

Shares Owned by Fisher Asset Management (as of September 30): 4.71 million shares

Value of Holding (as of September 30): $602.08 million

Bayer AG (ADR) (OTCMKTS:BAYRY) is among the 25 largest holdings of Fisher Asset Management at the end of the third quarter, accounting for 1.25% of the value of its entire equity portfolio. Ken Fisher’s investment firm enlarged its position in the company by 102,463 shares during the three-month period. The German drugmaker recently reported third quarter core earnings per share of €1.69 ($1.88), which were up by 28% year-over-year. This increase was mainly achieved thanks to the sales of new drugs, the acquisition of Merck & Co. Inc. (NYSE:MRK)’s consumer health business, and the positive impact of currency exchange rates. However, the company’s management expects a tougher fourth quarter, as a result of the global economic slowdown. Navellier & Associates, founded by Louis G. Navellier, sold out almost its entire stake of roughly 4,000 shares in Bayer AG (ADR) (OTCMKTS:BAYRY) during the third quarter.

#4 Sanofi SA (ADR) (NYSE:SNY)

Shares Owned by Fisher Asset Management (as of September 30): 13.30 million shares

Value of Holding (as of September 30): $631.16 million

Fisher Asset Management lifted its stake in Sanofi SA (ADR) (NYSE:SNY) by 49,373 shares during the September quarter, ending the three-month period with almost 13.30 million shares. The French pharmaceutical company has had a great year so far in terms of stock performance despite being caught in the broader market selloff. In fact, the stock has gained almost 10% since the beginning of the year. Last Thursday, the drugmaker reported sales of €9.59 billion ($10.51 billion), which were up by 3.4% year-over-year, but missed analysts’ expectations by 1.4%. Its business net income came to €2.1 billion ($2.3 billion), up by 5% year-over-year and in line with analysts’ estimates. Warren Buffett’s Berkshire Hathaway owned 3.91 million shares of Sanofi SA (ADR) (NYSE:SNY) at the end of June.

The billionaire’s top three healthcare picks are uncovered on the next page.

#3 Novo Nordisk A/S (ADR) (NYSE:NVO)

Shares Owned by Fisher Asset Management (as of September 30): 11.65 million shares

Value of Holding (as of September 30): $632.02 million

Fisher Asset Management sold a portion of its stake in Novo Nordisk A/S (ADR) (NYSE:NVO) during the September quarter. To be more detailed, the investment firm decreased its position in the Danish drugmaker by 643,596 shares or approximately 5%. The largest insulin maker in the world recently posted third quarter net profit of 8.38 billion Danish kroner ($1.24 billion), which was up by 29% year-over-year. Meanwhile, its sales climbed by 20% year-over-year to 26.8 billion kroner ($3.94 billion). Let us remind you that the Danish insulin maker recently received FDA approval for two injectable drugs, Tresiba and Ryzodeg. Tresiba is currently marketed in 30 countries and is expected to generate annual sales of $2.4 billion by 2020 (read more details here). The stock has advanced by 27% since the beginning of the year. Jim Simons’ Renaissance Technologies was the top shareholder of Novo Nordisk A/S (ADR) (NYSE:NVO) within our database at the end of the second quarter, holding 14.09 million shares.

#2 Johnson & Johnson (NYSE:JNJ)

Shares Owned by Fisher Asset Management (as of September 30): 10.69 million shares

Value of Holding (as of September 30): $997.86 million

Johnson & Johnson (NYSE:JNJ) was the seventh-largest equity holding of Fisher Asset Management at the end of the third quarter. Ken Fisher’s firm increased its holding in the three-sector healthcare company by 47,727 shares during the ugly three-month period. The shares of Johnson & Johnson are slightly more than 2% in the red year-to-date and are currently trading at a trailing P/E ratio of 19.57. This ratio is greatly above the 15.3 ratio for the healthcare sector, but it might be quite hard to make any conclusions on these figures considering this measure does not take into account the future growth rates (the trailing ratio does not reflect the future growth potential of companies’ drug candidates). The company also pays out an annualized dividend of $3 per share of common stock, which provides a current dividend yield of 2.94%. Cliff Asness’ AQR Capital Management held a 4.56 million-share stake in Johnson & Johnson (NYSE:JNJ) on June 30.

#1 Pfizer Inc. (NYSE:PFE)

Shares Owned by Fisher Asset Management (as of September 30): 31.93 million shares

Value of Holding (as of September 30): $1.00 billion

Pfizer Inc. (NYSE:PFE) represents the largest healthcare-related holding and the sixth-largest equity holding overall of Fisher Asset Management as of the end of the September quarter. Ken Fisher enlarged his position in the company by 110,130 shares during the latest quarter. Just recently, the executives of Pfizer and Allergan PLC (NYSE:AGN) acknowledged that the two parties have been involved in merger discussions. A potential deal between the two could allow Pfizer to become a part of Allergan as an Ireland-based company, which would make it subject to a lower corporate tax rate. The biopharmaceutical company also pays a quarterly dividend of $0.28 per share, offering a current dividend yield of 3.19%. Adage Capital Management, founded by Phill Gross and Robert Atchinson, was one of the top equity holders of Pfizer Inc. (NYSE:PFE) at the end of the second quarter, with 7.94 million shares.

Disclosure: None