I am a very enthusiastic reader of Ken Fisher’s Portfolio Strategy column. Fisher’s investment strategy focuses on knowing information that other market participants do not know, while prioritizing his analysis first with the macro level, then countries and sectors, and then in the end individual stock selection. In his recent blog, he wrote something that caught my attention. Here is an excerpt:
“Last Feb. 27 I purposefully and explicitly rolled all my 2011 picks — every one — into 2012, telling you to double down on them all precisely because I had faith in them even though 2011 was one of those four years where I underperformed. That worked. My recycled 2011 picks added return, helping out. This year I’m going the other way — starting from scratch. I’m recommending you sell my 2012 picks, or at least don’t put any new money in them.”
I was inquisitive to figure out the exits in his recent 13F filing. Out of the 27 exits that Fisher Asset management made, three major ones were Cymer, Inc. (NASDAQ:CYMI), Warnaco Group Inc (NYSE:WRC) and PSS World Medical, Inc. (NASDAQ:PSSI). Two common factors among these is that they came out with mixed earnings in 3Q12 and had lower 4Q12 estimates. And, these three companies were further acquired by other companies. Let’s analyze these stocks in detail.
Cymer’s 3Q12 results came out mixed as the company reported an EPS of $0.31 beating the consensus estimate of ~$0.07. Revenue came at ~$131 million, which was ~2.2% up from last year, but didn’t meet the consensus estimate of ~$151 million as the company faced low demand of deep ultraviolet (DUV) light source throughout the quarter.
The world leading supplier of light sources, Cymer received an offer to be acquired by ASML Holdings, which is Europe’s largest semiconductor equipment supplier for ~1.95 billion euros. As Cymer is known for developing new ways to pattern semiconductor chips, it will help ASML Holding N.V. (NASDAQ:ASML) in developing Extreme Ultraviolet (EUV) lithography, enabling more transistors to be etched on each microchip thus increasing power.
EUV provides support to the semiconductor industry’s transition and is seeing increasing demand. This should create a significant revenue opportunity for Cymer as well as ASML. However, the semiconductor equipment industry is seeing soft demand in 2013, thus bringing sales estimates down ~10% from flat. The consensus revenue estimate for the company is down to ~$126 million from $155 million, which makes the near-term future of this stock gloomy.