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Tech stocks that Ken Fisher likes

February 18, 2012 | About:
Mara Kohn

Mara Kohn

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Ken Fisher is the founder of Fisher Investments. This sole proprietorship was set up in 1979. In 1987, the company registered as an investment adviser with the Securities and Exchange Commission and later on, in 2005, it reorganized as an LLC. In the early 2000, Mr. Fisher began to offer its services in Canada and in the United Kingdom and in 2007 it set up a joint venture with a German money manager.

Fisher Investments follows Ken Fisher´s philosophy of the Price to Sales Ratio, which is considered a tool for financial investment analysis. Fisher used this approach to manage small capitalization portfolios. In the 90s, Fisher´s research helped to identify investment styles and cycles. In the early 2000, he began to focus on behavioral finance to understand how investors use financial tools and make investment decisions.

Here are some of his tech stocks:

EMC Corporation (EMC): EMC Corporation develops, delivers, and supports the information and virtual infrastructure technologies and solutions. The company offers enterprise storage systems and software, which are deployed in storage area networks (SAN), networked attached storage (NAS), unified storage combining NAS and SAN, object storage, content addressed storage, and/or direct attached storage environments.

EMC has moved from neutral to overweight according to JP Morgan´s rating and it is considered that it can gain share in the market. I think that Ken Fisher decided to keep its holding because its price target moved from $26 to $28 and it is now starting to outperform S&P. Most importantly, Credit Suisse has also upgraded EMC´s price target and has ranked the company as a strong buy.

Baidu (BIDU) is a Chinese language Internet search provider. It includes a search platform as well as Baidu Union, which is the company's network of third-party websites and software applications. The purpose of Baidu is to provide users relevant information online. Apart from providing Chinese language services, it also offers a Japanese-language search service. Baidu represents 70% of China´s Internet search business.

In relation to competitors, Baidu outperforms the two other large Chinese internet providers, Sina (SINA) and Sohu (SOHU) and is much better than three IPOs, namely, Youku (YOKU), Dangdang (DANG) and Renren (RENN). There is no doubt why Ken Fisher decided to bet on Baidu. Its market cap is 4.5 times the size of five other Chinese names combined. In addition, it is holding up quite well while others are falling around. As regards stock price, the target is $189, which implies a 45% increase. Furthermore, while other stock has severely dropped, Baidu has increased by 20%.

Baidu still has growth perspectives. ValueCreation™ has awarded it an Excellent and shareholders are really satisfied with the company´s policy. It has been generating value for the past years. Return on Invested Capital is expected to expand to 402.1% from 210.1%.

Microsoft (MSFT): MSFT is the world's leading software company. It develops operating systems, business software and other applications for servers, PCs and intelligent devices. Windows and products like Office represent 80% of revenue.

Financially speaking, MSFT saw an increase in shorts up 67.8m or 22%. Earnings will be reported at the beginning of 2012. However, no strong results are expected. Today, MSFT is undervalued. Ken Fisher definitely took into account this information to add a position to his holding. The company is trading at a discount at 9.10 forward P/E and 4.0 P/B vis-à-vis averages of 35.4 and 4.4 for competitors in computer software. The average price is $20-$30. This has been the situation for the last decade since the 2000 crash. Anyway, earnings are expected to rise at 6% annually from $2.69 in 2011 to $3.02 in 2013.

Microsoft has conceded the mobile market. Its partnership with Nokia (NOK) will deliver its first smartphone in the US. The company is also trying to reestablish a new WinTel model in tablets and expand into ARMH-based devices.

Amazon (AMZN): Amazon.com is the most customer-centric company for three primary customer sets: consumers, sellers, and developers. The company generates revenue through branded credit card agreements and other marketing and promotional services.

Amazon.com is rated as Excellent according to ValueCreation rating. It is the highest possible mark that companies can receive. The company has been generating value for shareholders for the past few years. Most importantly ROIC has averaged 194% in the last 3-year period. The company is performing well. Actually, according to analysts, shares are worth between $145 and $241. The estimated fair value of $193 per share represents a price-to-earnings (P/E) ratio of about 76.4 times last year's earnings and an implied EV/EBITDA multiple of about 38.4 times last year's EBITDA. This implies a compound annual revenue growth rate of 33.4% during the next five years. The expected fair value of $270 per share in Year 3 represents the existing fair value per share of $193 increased at an annual rate of the firm's cost of equity less its dividend yield.

Oracle (ORCL): ORCL is the world’s largest enterprise software company. It develops, manufactures, markets, distributes and services database and middleware software as well as applications software designed to help our customers manage and grow their business operations. The company leads the space jointly with SAP.

In the last fiscal year Oracle´s stock suffered a severe dropped as it did not meet Wall Streeters expectations. However, generally speaking Oracle is the same company. Ken Fisher decided to invest in it because the company´s stock is currently undervalued. If Oracle is able to meet expectations, it will give him the chance to expand his holding. Now the company is trading at the bottom of its five-year valuation range based on P/E, P/S, and P/B. Oracle’s current P/S ratio is 3.6 and it has averaged 4.5 over the past 5 years with a high of 5.5 and a low of 3.3. Oracle’s current P/E ratio is 14.3 and it has averaged 19.4 over the past 5 years with a high of 24.1 and a low of 14.0. Oracle’s current P/B ratio is 3.1 and it has averaged 4.3 over the past 5 years with a high of 5.9 and a low of 3.1.

For analysts, the Price target is $33. Oracle is currently trading at 10.1x FY13 EPS. This is in the middle end of the range that other tech giants trade at. Cisco (CSCO) is trading 10.1x, Microsoft (MSFT) is trading for 9.4x, Intel (INTC) is trading at 9.8x, IBM is trading for 12.1x, and Hewlett-Packard (HPQ) is trading at 6.2x. The average forward P/E ratio for the five tech stocks is 9.5.


Rating: 3.7/5 (10 votes)

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