Ken Fisher runs the $34 billion hedge fund Fisher Asset Management, an independent money management firm. Fisher's picks have outperformed the S&P 500 by more than 5% on average annually for the past 15 years. In addition to his day job, Fisher's been a Forbes columnist for nearly three decades. He's literally written the book -- several New York Times best-selling ones, in fact -- on investing. Bottom line: This guy knows his stuff. And we investors should sit up and take notes.
Under the hood of Fisher's picks
Fisher's holdings include a diversified mix of stocks that span all sectors. Currently, Fisher is underweight in conglomerates, transportation, and utilities (with less than 1% in each sector) and overweight in financial services and tech (with roughly 20% apiece). The majority of the fund's top 50 holdings pay more than a 2% dividend yield. The fund boasts a very low turnover, which minimizes the dependence on market timing and instead relies on Fisher's long-term stock picking prowess.
Check out Fisher Asset Management's top 10 holdings based on its 13-F SEC filing for Q3 2012. These positions make up roughly 20% of the hedge fund's portfolio.
Percentage of Portfolio
iShares iBoxx $Invest Grade Corp Bond
Pfizer (NYS: PFE)
Johnson & Johnson
Cisco Systems (NAS: CSCO)
General Electric (NYS: GE)
IBM (NYS: IBM)
Apple (NAS: AAPL)
Sources: Whale Wisdom , Yahoo! Finance
All of the hedge fund's top stock holdings are large-cap or megacap stocks, meaning market capitalization greater than $10 billion or $100 billion, respectively. Fisher points out his bullishness on very large company stocks in his Stock Market Outlook for Q4 2012. Of these stocks, he loaded up most heavily on shares of Apple in the most recent quarter.
Let's look at five of these companies and examine some possible reasons Fisher likes these stocks in particular.
Last year, Pfizer announced plans to refocus the company's strategy on its core pharma business and sell or spin off some non-pharma businesses. Many investors, Fisher probably included, believe this strategy will allow Pfizer's drug pipeline to have a greater effect on the company's growth. Pfizer's most promising drugs target the treatment of rheumatoid arthritis and cancer. Fisher added more shares of Pfizer in the third quarter.
Cisco faces increased competition from large players and niche companies focused on cloud computing, which has put pressure on revenue and profit margins. The company has since outlined a strategy to streamline operations and get out of non-core areas. Cisco's turnaround plan won't happen overnight, but its impressive cash position and strong cash flow buys the company time to execute on its plan. In the third quarter, Fisher backed up the truck and increased his holding in Cisco by 77%.
Fisher's position in GE stayed roughly the same during the past quarter. One of the issues weighing on GE's stock is its slower growth relative to peers. Profitability has also been under pressure because of competition in key markets such as wind turbines. Over the long term, GE will probably benefit from emerging-market growth, but it'll be an uphill climb given these challenges.
Fisher increased his holding in IBM during the third quarter. IBM is in the midst of transforming its business by divesting lower-growth, lower-profit businesses such as PCs and printers and has acquired businesses in higher-growth, higher-profit areas such as software and services. Fisher probably believes the market will reward IBM for this profitability improvement. In the meantime, he added 47% more shares in the third quarter.
Apple is attractive because of its ability to innovate and produce sought-after solutions. The company boasts a fortress balance sheet, and Tim Cook has emerged as a qualified and capable successor to the late Steve Jobs. Obviously, Fisher thinks so, too. The fund manager greatly increased the fund's position in the company in the third quarter.
Foolish bottom line
It can be tempting to trade simply based on what a billionaire hedge fund manager does. But think twice about doing so. They too sometimes make lousy calls. We just don't know what the bad picks are until it's too late. Instead, do your own homework. Develop your own investing thesis. You'll be a better investor for it.
Obviously, billionaire Ken Fisher thinks Apple is a buy. And there is absolutely no argument that Apple is at the center of technology's largest revolution ever. Longtime shareholders have been handsomely rewarded with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.
The article Billionaire Ken Fisher's Top Stock Picks originally appeared on Fool.com.
Fool contributor Nicole Seghetti owns shares of Apple, Pfizer, Wells Fargo, Johnson & Johnson, and General Electric. The Motley Fool owns shares of Apple, General Electric, IBM, Johnson & Johnson, and Wells Fargo. Motley Fool newsletter services recommend Apple, American Express, IBM, Johnson & Johnson, Visa, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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