The way equity markets have behaved since the start of 2016 has led many investors and market experts to believe that we are approaching the end of a multi-year bull run. However, at the same time, there are also many of those who see the recent slump as nothing more than a healthy correction. In one of his recent articles, billionaire, author, and long-time Forbes columnist Ken Fisher said that 2016 is a year to be ‘moderately bullish’ on equities and to be overweight on US equities. According to him, we have entered the latter phase of a bull market, a phase in which investors should focus on “high–quality big stocks with relatively predictable earning streams”.
If one takes a look at Fisher Asset Management latest 13F filing with the Securities and Exchange Commission (SEC) for the fourth quarter of 2015, it is evident that Mr. Fisher is not putting across his views just for the sake of it, but is also backing it up by putting his money where his mouth is. According to the filing, even though Fisher Asset Management’s US equity portfolio consisted of 756 open positions and was worth almost $52 billion at the end of December, its top 10 holdings alone accounted for 21.17% of the equity portfolio value and most of these stocks exactly met the criteria laid down by Mr. Fisher in his article. In this post, we will be going through Fisher Asset Management’s top five stock picks for the first quarter of 2016 and analyze their recent performance.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).
#5 Johnson & Johnson (NYSE:JNJ)
– Shares Owned by Fisher Asset Management (as of December 31): 10.8 million
– Value of Holding (as of December 31): $1.11 billion
Fisher Asset Management increased its stake in Johnson & Johnson (NYSE:JNJ) by 126,481 shares during the fourth quarter. Like most stocks, Johnson & Johnson also started 2016 on a dismal note, but it managed to recoup most losses after it reported its fourth-quarter earnings on January 26. While the Street was expecting the company to report EPS of $1.42 on revenue of $17.88 billion for the quarter, Johnson & Johnson posted EPS of $1.44 on revenue of $17.80 billion. In spite of decreasing sales and threats to its best-selling anti-TNF (Tumor Necrosis Factor) drug ‘Remicade’ from other biosimilars, several analysts that cover Johnson & Johnson remain bullish on it, citing the company’s ability to continuously increase its free cash flow, its impressive drug pipeline and the $18.5 billion net cash that sits on its books. Cliff Asness‘ AQR Capital Management was one of the funds that sold off its entire stake in Johnson & Johnson during the fourth quarter of 2015; it held over 3.5 million shares of the company at the end of September.
#4 Home Depot Inc (NYSE:HD)
– Shares Owned by Fisher Asset Management (as of December 31): 8.46 million
– Value of Holding (as of December 31): $1.12 billion
Amid a 14.5% rise of the Home Depot Inc (NYSE:HD)’s shares during the fourth quarter, Fisher Asset Management inched up its stake in the company by 89,414 shares. The rally that shares of Home Depot Inc (NYSE:HD) registered in the last four years seems to be coming to an end in 2016 as the stock has lost almost 12% year-to-date. While this decline might have caused pain to investors, it has also pushed the dividend yield of the stock to over 2%. Home Depot has been one of the few companies that has consistently increased its operating margin since the end of the financial crisis, which has helped it in becoming a favorite stock among analysts and investors alike. On January 25, analysts at Deutsche Bank upgraded the stock to ‘Buy’ from ‘Hold’ and also raised their price target to $135 from $122.76. Mark Wolfson and Jamie Alexander‘s Jasper Ridge owns around 1.0 million shares of Home Depot as of the end of the fourth quarter.