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.
Fisher reported a position of about 18 million shares in Wells Fargo & Co (NYSE:WFC) at the beginning of April. While Wells Fargo & Co (NYSE:WFC) trades at a significant premium to the book value of its equity (the P/B ratio is 1.4) in contrast to many of its peer megabanks, it has been doing well enough in terms of earnings that the current valuation represents a trailing P/E of only 12. With net income rising by over 20% in the first quarter of 2013 versus a year earlier, we think that there’s a value case here and would be interested in comparing Wells Fargo & Co (NYSE:WFC) to its peers.
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.