Ken Fisher (Trades, Portfolio), the founder of Fisher Asset Management, recently disclosed the firm’s profile updates for the fourth quarter of 2019.
The guru’s Camas, Washington-based firm invests using what it calls “The Four Market Conditions” to determine what investment strategy is best for the current market environment. It holds that supply and demand are the most important factor in determining stock prices, and that the only way to gain more than the market average (aside from sheer luck) is to find information that is not widely known or interpret the same information differently from other investors. Fisher Asset Management has been ranked the top U.S.-based fee-only registered investment advisor by Investment News from 2016 to 2019.
As of the end of the quarter, the firm’s equity portfolio has 851 stocks (72 of which are new buys for the quarter) and is valued at $98.8 billion.
The firm’s top holdings are Apple Inc. (AAPL) with 4.17% of the equity portfolio, Visa Inc. (V) with 3.84% and Microsoft Corp. (MSFT) with 3.40%. In terms of sector weighting, Fisher is most invested in technology, financial services and health care.
Based on the above criteria, the fund’s top buys for the quarter were Onto Innovation Inc. (ONTO, Financial), Enterprise Products Partners (EPD, Financial), Caterpillar Inc. (CAT, Financial), Lumentum Holdings Inc. (LITE, Financial) and several ETFs and ETNs (exchange-traded funds and exchange-traded notes).
Onto Innovation Inc.
Fisher established a new holding of 892,207 shares in Onto Innovation, impacting the equity portfolio by 0.03%. Shares traded at an average price of $34.02 during the quarter.
Onto Innovation is a semiconductor company headquartered in Wilmington, Massachusetts. It was rebranded from the October 2019 merger of Nanometrics and Rudolph Technologies and expects to see positive effects from resulting cost synergies as well as the combined research and development teams.
On Feb. 13, shares of Onto traded around $39.09 per share for a market cap of $979.92 million and a price-earnings ratio of 35.61. According to the Peter Lynch chart, the stock may be overvalued.
GuruFocus has assigned Onto a financial strength score of 7 out of 10 and a profitability score of 8 out of 10. Over the past three years, revenue has grown at a rate of 7.3% per year.
The company expects to see several headwinds in the upcoming years, particularly from 5G and internet of things (IoT) implementation, which will require unprecedented amounts of semiconductors. CEO Michael Plinsinki said the following on the company’s fourth-quarter 2019 earnings report:
“This is an exciting time for the emergence of Onto Innovation. This new, yet highly experienced, semiconductor equipment supplier broadly serves the increasingly more complex semiconductor value chain. Onto Innovation customers count on our team to provide high quality solutions for advanced silicon, advanced logic and memory, and advanced packaging. As we prepare for potential growth in multiple markets, we are also making excellent progress with our integration.”
Enterprise Products Partners
Fisher also made a new investment in Enterprise Product Partners, buying 584,777 shares. The trade had a 0.02% impact on the equity portfolio. Shares traded at an average price of $27.10 during the quarter. The firm has held smaller positions in the past.
Based in Houston, Enterprise Products Partners is a natural gas and crude oil pipeline company. Its services include the transportation, fractionation and storage of energy assets, as well as import and export terminals.
On Feb. 13, Enterprise shares traded around $26.14 for a market cap of $57.36 billion and a price-earnings ratio of 12.59. According to the Peter Lynch chart, the stock is undervalued.
Enterprise has a GuruFocus financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The Altman-Z score of 1.85 suggests that Enterprise may have trouble covering its debt. The company has seen a revenue roller-coaster over the past decade, but net income growth has been fairly steady.
The company is currently undergoing growth efforts, with major capital projects under construction of approximately $7.7 billion. It is well positioned to take advantage of the U.S.’s efforts to become one of the largest net energy exporters in the world.
Caterpillar Inc.
The firm added 170,314 shares, or 3.17%, to its position in Caterpillar, bringing the total number of shares owned up to 5,547,111 and impacting the equity portfolio by 0.03%. During the quarter, shares traded at an average price of $140.03.
Caterpillar is the world’s largest designer and manufacturer of construction equipment. Based in Deerfield, Illinois, its products are synonymous with transportation infrastructure and building construction projects in the U.S.
On Feb. 13, shares of Caterpillar traded around $140.26 for a market cap of $77.28 billion and a price-earnings ratio of 13.05. According to the Peter Lynch chart, the stock is trading below its intrinsic value.
GuruFocus has assigned the stock a financial strength score of 5 out of 10 and a profitability score of 7 out of 10. As shown in the chart below, the construction machinery industry is cyclical, so Caterpillar is likely to see its revenue increase in the upcoming years. Revenue has grown at a rate of approximately 5.3% per year over the past three years.
The company’s recent innovations include generator sets that burn lean methane produced from mining processes, reducing the greenhouse gas emissions of mining equipment. It has also made progress in its autonomous mining solutions, with a 48% increase in autonomous mining trucks in service in 2019 compared to the prior year. Caterpillar is also in the process of developing marine carrier ships fueled exclusively by liquified natural gas, making it a leader in this field.
Lumentum Holdings Inc.
Fisher also added 639,690 shares, or 158.87%, to the Lumentum Holdings stake, bringing the total number of shares owned up to 1,042,342. The trade impacted the equity portfolio by 0.05%. Shares traded at an average price of $66.02 during the quarter.
Lumentum Holdings produces optical and photonic products for market applications such as data communications, telecommunications, networking, commercial lasers and life sciences. It is based in San Jose, California.
On Feb. 13, Lumentum shares traded around $91.56 for a market cap of $6.88 billion. According to the Peter Lynch chart, shares are trading above their fair value.
Lumentum has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 5 out of 10. Revenue has grown at a rate of 13.2% per year over the past three years, though net income plunged back into the negatives for fiscal 2019.
Lumentum’s shares are up significantly since the end of the October 2019 as the company has seen it sales grow. For its first quarter of fiscal 2020, Lumentum reported a 27% year-over-year increase in sales. The pick-and-shovel nature of its products means it can profit from growth in a variety of sectors, including cloud and enterprise software, biotechnology and biomedical sciences, autonomous vehicles, etc.
ETFs and ETNs
The Guru added to positions in several ETFs and ETNs during the quarter, including the following: Vanguard Intermediate-Term Corporate Bond ETF (VCIT, Financial) (0.28% impact on the equity portfolio), Large Cap Growth Index-Linked ETNs due 2028 (FRLG, Financial) (0.15% impact), UBS AG FI Enhanced Global High Yield ETN (FIHD, Financial) (0.08% impact), PowerShares QQQ Trust Ser 1 (QQQ, Financial) (0.04% impact) and iShares MBS ETF (MBB, Financial) (0.04% impact).
Disclosure: Author owns no shares in any of the equities mentioned.
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