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Kenneth Fisher's New Buys and Adds: IBM, AGN, GOOG, MDT, JNJ

July 25, 2011 | About:
Ken Fisher, son of legendary investor Phillip A. Fisher, is the CEO and chief investment officer of Fisher Investments. He is the only industry professional his father ever trained, and over his career as a fund manager, he has made numerous accurate market calls that were often in opposition to the Wall Street consensus. Fisher is also a contributor to Forbes, having written the "Portfolio Strategy" column for over two decades. His investment philosophy assumes that supply and demand are the sole determinants of security pricing, and that all widely known information has already been priced into the market. Thus, Fisher Investments seeks to identify and exploit information not widely known or to interpret commonly held beliefs differently. According to his second quarter portfolio disclosures, Fisher made numerous new additions and buys, with the five most impacting his portfolio being IBM (IBM), Allergan Inc. (AGN), Google (GOOG), Medtronic Inc. (MDT), and Johnson & Johnson (JNJ).


Fisher has held IBM for many years now, having owned 52,000 shares back in the second quarter of 2006. He has slightly adjusted his position multiple times over the past five years, adding as much as 100,000 shares in the third quarter of 2007 for an average price of $113.39 but then selling 90,000 of those shares the next quarter for an average price of $110.13. His stock in the company has dwindled over the recent two years, down to under 26,000 in 2010. However, his most recent addition increased his position by an astonishing 7927% at the average price of $166.95. He now holds 2,161,426 total shares, and the current price of IBM has since increased by 11%.

IBM uses advanced information technology to provide customer solutions. The company operates primarily in a single industry using several segments that create value by offering a variety of solutions that include, either singularly or in some combination, technologies, systems, products, services, software and financing. Organizationally, the company's major operations comprise three hardware product segments--Technology, Personal Systems and Enterprise Systems; a Global Services segment; a Software segment; a Global Financing segment and an Enterprise Investments segment.

According to its second quarter report, IBM earned $26.7 billion in total revenue, a 12.4% increase year-over-year. This growth in revenue was led by a 17.5% sales increase in its Systems and Technology segment and a 16.9% sales increase in its Software segment. Net income increased by 8.2% to $3.6 billion year-over-year, increasing basic earnings per share from $2.65 to $3.04. Free cash flow was $3.4 billion, an increase of $350 million year-over-year. The company returned $4.9 billion to shareholders through $0.9 billion in dividends and $4.0 billion in share repurchases.

The stock currently trades with a P/E ratio of 14.9, in line with its five-year historical average. It also has a P/B ratio of 9.9, above its historical ten-year average and nearing its historical high. Its P/S ratio of 2.3 is its highest in five years and slightly above its historical ten-year average.

Allergan Inc. (AGN)

Allergan Inc. represents a new buy for Fisher. He purchased 4,236,816 shares of the company at an average price of $79.89, and the price has since increased by 5.6%.

Allergan Inc. is a provider of eye care and specialty pharmaceutical products throughout the world with products in the eye care pharmaceutical, ophthalmic surgical device, over-the-counter contact lens care, movement disorder, and dermatological markets. Its worldwide consolidated revenues are principally generated by prescription and non-prescription pharmaceutical products in the areas of ophthalmology and skin care, neurotoxins, intraocular lenses and other ophthalmic surgical products, and contact lens care products.

According to Allergan's recent quarterly reports for the period ending March 31, revenues increased to $1.27 billion, a 10% increase year-over-year but a 3% decrease quarter-over-quarter. The growth in sales spanned a broad range products and was helped by launches of new products. Net income decreased to $158 million, a 6% decrease year-over-year and 40% decrease quarter-over-quarter. Free cash flow increased from last quarter's $409 million loss to a $121 million gain, though this is a decrease from last year's $161 million. Return on equity decreased from 7.10% last year to 3.70% this year, and debt to equity nearly doubled last year's 17.70% to 31.30%.

On 3/7/2011, Allergan announced that its Board of Directors reappointed David E.I. Pyott as President. Mr. Pyott also continues to serve Allergan in his current roles as Chairman of the Board and Chief Executive Officer.

Google (GOOG)

Fisher first bought into Google in the fourth quarter of 2007, purchasing 894 shares for an average price of $668.88. When prices tumbled from their peak to an average of $518.61, he added another 37,534 shares. Since then, Fisher managed to buy shares when Google was trading low and sell shares when prices rebounded, leaving him with 13,426 shares last quarter. His most recent move added to his position by 5057.38% at an average price of $527.28, giving him a substantial 692,430 total shares. The price has since increased by 17%.

Google is a public and profitable company focused on search services. Named for the mathematical term "googol", Google operates web sites at many international domains, with the most trafficked being www.google.com. Google is widely recognized as the "World's Best Search Engine" and is fast, accurate and easy to use. The company also serves corporate clients, including advertisers, content publishers and site managers with cost-effective advertising and a wide range of revenue generating search services. Google's breakthrough technology and continued innovation serve the company's mission of "organizing the world's information and making it universally accessible and useful."

According to its second quarter report, Google saw revenues increasing by 32% year-over-year to over $9 billion. This includes a 39% increase in Google Sites revenues as well as a 20% increase in Google Network revenues. Net income grew by 36% year-over-year to $2.5 billion. Free cash flow was $2.6 billion, the highest it's been in the past six quarters. Google also incurred $3 billion in debt on its balance sheet, the first time in recent years it has done so.

Currently the stock trades with a P/E ratio of 21.2, very near its historical low. Quarterly earnings per share have trended upward since 2005, save for one dip in the fourth quarter of 2008.

It also has a P/S ratio of 6.8, below its historical average. Its P/S ratio has been trending downward for the past five years while quarterly sales per share has grown steadily over the past five years. Google's P/B ratio is 3.8, near its historical low, while book value per share has been trending upward each of the past five years.

Medtronic Inc. (MDT)

Like IBM, Fisher has owned Medtronic for many years as well, holding nearly 380,000 shares in the first quarter of 2006. He added nearly 75,000 more shares in the third quarter of 2007 for an average price of $53.42, though he would later sell roughly the same amount of shares for an average price of $49.95 three quarters later. Since 2009, Fisher has mostly been selling shares as prices hit $30 and then climbed back up. Last quarter, he added 203,634 shares at an average price of $38.44 for a total of 323,365 shares. His most recent move increased his holdings by a sizeable 2563.22% at the average price of $40.31, giving him a tremendous 8,611,921 total shares. However, the current price has since decreased by 8%.

Medtronic is the world's leading medical technology company, pioneering device-based therapies that restore health, extend life and alleviate pain. Primary products include those for bradycardia pacing, tachyarrhythmia management, atrial fibrillation management, among others. Medtronic operates its business in one reportable segment, that of manufacturing and selling device-based medical therapies. The company does business in more than 120 countries. The company's product lines include cardiac rhythm management, neurological and spinal, vascular and cardiac surgery.

Medtronic has had very steady revenue growth over the past ten years at an annual rate of 12.3%. According to the company's latest quarterly reports, revenues increased by 2.4% year-over-year and by 8.4% quarter-over-quarter to $4.3 billion. This was driven by emerging technologies and emerging markets growth of greater than 20% and steady growth the Coronary & Peripheral, Structural Heart, Endovascular, Diabetes, and Surgical Technologies businesses. This growth was offset with setbacks in the implantable cardiac defibrillator and Spinal markets. Net income decreased to $776 million, a 19% decrease year-over-year and a 16% decrease quarter-over-quarter. Free cash flow also decreased to $677 million, the lowest it has been in the past five quarters.

The stock currently trades with a P/E ratio of 11, very near its historical low. It also has a P/S ratio of 2.5, also very near its historical low, and P/S ratio has been trending downwards over the past decade. Quarterly sales per share meanwhile has been steadily increasing, now at $4.02. Its P/B ratio of 2.5 is near its historical low as well, and its P/B ratio has been trending downwards over the past decade too. Its book value per share has also been steadily trending upwards, now at a high of $14.93.

Johnson & Johnson (JNJ)

Fisher has also owned Johnson & Johnson for many years. He sold 2.86 million shares in the second quarter of 2006 at an average price of $59.58, giving him 385,888 remaining shares. After buying more shares to give him over 1.2 million shares, in the second quarter of 2008 Fisher added another 6.1 million shares for an average price of $66.06. However, prices slightly fell and Fisher steadily sold nearly 1.5 million shares between 2008 and 2010. In the first quarter of 2011, Fisher ended his selling streak when he bought 257,582 shares at an average price of $60.67. Most recently, he added another 71.69% to his position, buying 4,478,711 shares for an average price of $64.82. He now has a total of 10,725,825 shares in the company, and the price has since increased by 3%.

Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer, Pharmaceutical and Professional.

Johnson & Johnson's revenue has grown by an average 9% annually over the past 10 years. According to its second quarter reports, the company grew sales by 8.3% year-over-year to $16.6 billion on the strength of recently launched products. However, net earnings decreased by 19.5% year-over-year to $2.8 billion. Excluding after-tax charges for special items including litigation costs, acquisition costs, and recall costs, net earnings for the quarter would then total $3.5 billion, an increase of 4.9% year-over-year.

The stock currently trades at a P/E ratio of 13.6, below its ten-year historical average though in line with its recent three-year average. It's P/S ratio is 3.0, near its seven-year average. Quarterly sales per share have been generally trending upwards, now at $5.90. It's P/B ratio is 3.1, near its historical low. Book value per share has meanwhile been trending upwards, now at a high of $21.85.

On 4/27/2011, Johnson & Johnson announced that it had entered into a definitive agreement to acquire Synthes Inc., a global manufacturer of orthopedic devices for approximately $21.3 billion.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.

Rating: 2.9/5 (11 votes)


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