Ken Fisher interview for Forbes

With fiscal cliff fears hitting a fevered pitch, I had the chance recently to sit down with Ken Fisher and query him on his views of this widespread investor concern.

Q: Will there be a fiscal cliff deal by yearend?
A: Can’t say. I can’t see into Mr. Boehner’s or Mr. Obama’s overtly political hearts or minds and don’t want to. But if there’s no deal, it’s not a crisis. The fiscal cliff is fake. A political invention, arbitrarily put at January 1 because it was politically expedient in 2010 to stick it there. Now it’s politically expedient to push it past the 2014 elections. Democrats have more to lose in 2014 than is commonly perceived now and they’ll want to compromise.

Q: Is time running out?
A: No! The fiscal cliff which is really more of a fiscal rolling plain has many moving parts that don’t hit all at once. Spending cuts are already underway and will happen piecemeal, allegedly, over the year. The higher taxes, many of them, aren’t due until April of 2014. Maybe this impacts withholding levels if a deal is struck later—folks have to adjust them then adjust back.
What could happen is Mr. Boehner and Mr. Obama say, “Now we declare we have until February 28 to solve this issue.” They did the exact thing before with the payroll tax—arbitrarily moving the arbitrary deadline to buy time for a longer arbitrary can-kick. This is political. It’s fake. They made the rules, they can and will change them.

Q: If there’s no deal, how do you think government spending cuts impact investors?
A: People make two errors here. First, they think growing government spending is critical to a healthy economy. Wrong. Falling government spending detracts from headline GDP numbers, but GDP doesn’t perfectly reflect economic health. The private economy has been doing very well since 2009—better than most realize. Profits are near all-time high. Business spending is robust. Consumer spending is past the pre-recession peak. Incomes are growing. It’s true unemployment remains high, which no one wants. But unemployment lags economic growth, always. That started sometime before the first recession Christ lived through.
The second error is they don’t bother checking data themselves. Total government spending actually dropped a hair in 2012, and nothing terrible happened. GDP wasn’t rip-roaring, but reaccelerated mid-year. It was fine. In 2013, if you believe the plans, with the “cliff” government spending actually drops less than it did in 2012 if nothing changes. Starting in 2014 and forever after, government spending grows as it always does. From a spending standpoint, we already went off the fiscal molehill and it was fine. Not Armageddon.

Q: If current tax rates rise, what’s the market impact?
A: This is a case where the fear of the thing is so much bigger than the thing, it can’t be anything but bullish.
In the long history of income taxes in the US and overseas, there have been a great many rate jiggers. Same is true on capital gains taxes and every other form of tax imaginable. People simply do not want to believe this, because it goes against something that seems commonsensical. But there’s no clear pattern—zero—that when tax rates rise, stocks do badly (or well). Or if taxes get cut, stocks must do great. What’s clear to me from studying this is, whether you raise taxes or cut them, stocks want to rise much more than fall and will do what they were going to do anyway.
But to believe tax rates have a big darn impact on market direction you have to ignore the many, many other more important things simultaneously acting on stocks. And you have to ignore the 77% of non-US global GDP. I don’t like higher taxes because I think the government is a stupid spender of money. But I don’t fear the capital markets impact from a marginal shift in tax rates in a single country.

Q: So how is that bullish?
A: When I see big fear of potential tax hikes like now, I know that’s bullish. First, either the tax hikes don’t happen, or they’re not as bad as feared. Anyone can see how if a feared tax hike doesn’t happen, that’s a positive factor. But even if tax hikes happen as feared, vast history tells me it doesn’t have to have the big bad impact folks fear. And fear of a false factor is always bullish.

Spurce: Forbes

Kenneth Fisher’s 3 top stock picks for Q3

Ken Fisher is a businessman, chairman and also Fisher Investment’s CEO, which is a firm placed in California. Kenneth Fisher writes in the column “Portfolio Strategy” in Forbes magazine. Furthermore, he is one of the wealthiest Americans and a part of Forbes’400 world billionaires. The funds which are run by himself at Fisher Asset Management had value at 34.91 bn dollars. The three best yielding dividend stock picks of Fisher are GlaxoSmithKline, Pfizer and General Electric.

The market capitalization of GlaxoSmithKline is 107.56 bn dollars and it is currently employing around 98 thousand people, it generates revenue of around 44.150 m dollars and it also has a net income of 8.798 bn dollars. Its EBITDA and its earnings before interest amounts to 14.844 bn dollars. 33.62 is the percentage of the EBITDA margin. 36.27 of the company’s assets is the percentage representing the total debt. Because of the current financial situation, there was a realization of 62.18 per cent return on equity. The P/E ratio of GlaxoSmithKline is 13.66, its P/E ratio is 2.42, and its P/B ratio is 8.48. Its beta ratio has a value of 0.65 and the dividend yield is 5.31 per cent.

The second best yielding dividend stock pick of Ken Fisher is Pfizer with a 184. 65 bn dollars market capitalization. Furthermore, it currently employs 103,7k people, it generates revenue of 67.425 bn dollars and its net income is 8.739 billion dollars. Its EBITDA and its earnings before interest have the amount of 23.011 bn dollars. Its EBITDA margin is 34.13 per cent. 20.72 of the company’s assets is the percentage representing the total debt and the total debt concerning the equity is 47.39 per cent. Moreover, the return on equity was 10.24 per cent. The company’s P/E ratio is 20.03, its P/S ratio is 2.74 and its P/B ratio is 2.31. Its dividend yield is 3.83 per cent and its beta ratio’s value is 0.70.

The third top dividend stock pick of Fisher is General Electric, a company having 218.32 bn dollars market capitalization and currently employs 301k people. It generates revenue of 147.300 bn dollars and its net income is 14.366 billion dollars. Its EBITDA and earnings before interest amount for 31.015 bn dollars. The EBITDA margin is 21.06 per cent. The total debt represents 63.22 per cent of the company’s assets. 389.43 is the percentage which corresponds to the total debt in relation to equity. Its return on equity was 11.06 per cent. General Electric’s P/E ratio is 15.45, its P/S ratio is 1.48 and its P/B ratio is 1.89. Its dividend yield is 3.65 per cent and its beta ratio’s value is 1.61.

The Fisher Strategy

Kenneth Fisher is an investment manager of high profile and also a very wealthy, if not one of the wealthiest Americans. He has credit for establishing an indicator with enormous influence on the stock valuation – the price-to-sales ratio. He is respected as one of the best investment professionals there are due to his research, his published books (Super Stocks) and Fisher Investments – his successfully developed firm.

Fisher, born in 1950, graduated in 1972. Afterwards his father – Philip Fisher, a famous investment analyst - gave him employment. In 1979 Kenneth founded FI (Fisher Investments). Since then, he has written seven books, research articles and papers and still writes a column for Forbes.

Fisher expressed his opinion on the matter how investors should value and approach stocks, in Super Stocks. His firm having expanded to 42 bln dollars, he broadened his views. The successful approach of price-to-sales ratio, together with other factors of quality and quantity, continues to be appealing to value investors.

The strategy of investment shown to Super Stocks consists of a value-based formula that has the purpose of investing in quality companies at a reasonable price. Fisher describes the result as Super Stocks – in the 1^st 3-5 years after the purchase, these stocks would increase in value 3-10 times. He will look for companies which suffer ‘glitches’. In his words, this problem is often faced by newly found companies. He cites obstacles in earning, created by teams of management while the firm is growing. During a lack financial profit, he explains, very few are the investors that have a basis by which to value growth stocks, this being the reason for the loss of supporters. The most effective managements overcome difficulties as soon as they occur thus making their sales and profits pick up in time.

Fisher is convinced earnings are not a factor which gives accurate forecast for the future. Instead, he chooses to focus on potential margins for profit and the price-to-sales ratio. These, he says, give an insight on the quality business that is done by the particular company.

In place of corporate earnings being used (like the P/E), corporate sales are used by the PSR. Calculation is done by dividing the total value of the market by the corporate sales of the last twelve months.

Fisher also puts into use the metric PRR – price research ratio. It analyses the Ramp value - dividing the company’s market value by the expenses for corporate research during the past year. This gives the opportunity to spot stocks that are not Super Companies.

According to Fisher, here’s what a Super Stock must have: a capital that is able to support 5 years at the least, during which the company is at a loss; a maximum of forty per cent of assets that are debt-financed; net free capital, able to cover minimum 3 years of negative money flow.

The criteria of Super Stock are only applied to Super Companies. These companies display healthy characteristics of quality. They emphasise on the method of finding companies that have a management skilful enough to correct mistakes and go on, not investing in stocks that are considered ‘living dead’. Fisher’s criteria resemble the checklist his father created. It includes: orientation of growth; excellence of marketing; advantage in competition; creativity of the personnel quality finance control.

‘Almost never’ – that is how Kenneth Fisher describes the right moment for the selling of a Super Stock. However, if the company no longer qualifies as a SC, the stock may get sold. There are three ways by which investors can find candidates with real potential – look out for PSRs that are low, companies that are at a loss and qualitative evaluation of companies considered superior.

Ken Fisher on the bull market

The CEO of Fisher Investments Ken Fisher had recently said that there was a trend from large-cap stocks. Fisher noted some of the recent trends in the bull market in a recent interview for the CNBC.

A victory for Ken Fisher?

The stock picks of the billionaire hedge fund manager Ken Fisher have a tendency to outperform the market. During Q2, Fisher Asset Management increased its stake in NIKE, Inc. to a total of 3.7 million shares. At the beginning of the quarter, the hedge fund owned only 50k shares of Nike, so it could be said that Fisher’s team has made quite the confident stock pick.

Renaissance Technologies was also interested in Nike during Q2. It owned 1.6 million shares for the end of June 2012. The success of RT gave its founder Jim Simons the opportunity to build a net worth of 11 billion dollars.

Nike’s revenue was up 16 per cent over the last fiscal year and it has grown a GAGR of 7 per cent. The company’s net income was also up with its posting a 4 per cent growth rate for May 2011. Earnings per share were up 8 per cent. EPS has grown at 6 per cent annual rate for the last 4 fiscal years, whereas the net income has grown at a 4 per cent rate. The board of Nike has recently approved a repurchasing program of 8 billion dollars which is expected to last about 4 years.

NIKE, Inc. is able to charge a price premium since it’s an owner of a global brand. It may be expected that the company is exposed to a poor macro environment, but that is not the case at all: the stock’s beta is 0.9 and it tends to fall or rise about in line with the market. It is up 71 per cent over the last 5 years.

Ken Fisher’s shares in Starbucks

Billionaire Ken Fisher’s stock picks have outperformed the stock market. The positions of his Fisher Asset Management have not changed in size over the second quarter. Comparing the hedge fund’s 13F from Q2 with its Q1’s, we can see that a few stock positions have increased by 2 per cent or decreased by 1 per cent and so on, until we get a peek of Starbucks. The holdings of Fisher Asset Management of the coffee shops rose to 10m shares (for the end of June) from 550k (for the beginning of April). The stock of Starbucks rose with additional 8 per cent in 2012. It is also up 77 per cent in comparison to 5 years ago and it has more than doubled in price for the past 2 years. Another large position in Starbucks is of Columbus Circle Investors with 3.6 m shares.

The third fiscal quarter of Starbucks was characterized by 13 per cent increase in revenue in comparison with the third fiscal quarter in 2011. Marco watchers are worried about the American consumers and a common debate is that whether American should spend 5 dollars for a cup of coffee. Nevertheless, the segment of America reported 7 per cent same-store sales growth. Moreover, the same-store sales have risen with 12 percent in China/Asia-Pacific. Since many fixed costs were held in check, the net income has increased with 19 per cent.

The revenue of Starbucks has grown with 15 per cent and the company’s net income has risen to 16 per cent in comparison to 2011.

Starbucks is a growing business but the catch is that it carries a premium valuation. 27 is the number of the trailing price-to-earnings, and the estimation of forward earnings is 20 per cent EPS growth for 2013.

Starbucks could be compared to other companies which share the same problems – Green Mountain Coffee Roasters, which like Starbucks depends on the demand for coffee, Dunkin Brands, McDonalds and Panera Bread.

Being lampooned as a company which have locations that are within spitting distance of one another, it has still managed to get down to serious business. Moreover, it trumps both McDonalds and Dunkin in terms of recent growth.

Kenneth Fisher joins Warren Buffet

Warren Buffet has been interested in American Express Company, which for a long time has been rendering travel management along with providing charge and credit cards.

This Q2 Fisher Asset Management joined Warren Buffet in the stock and the position for Q2 was 6.6 m shares. In Q2 American Express’ revenue increased by 3 per cent as a contrast to last year’s. The company’s earnings increased from 1.10 to 1.15 dollars per share due to a decrease in share count, whilst net income remained unchanged. The numbers of the company have been more or less good for the first few months of 2011 with EPS being 2.07 dollars and 2.22 dollars for 2012. That is 7 per cent growth rate which is not enough to classify AE as a growth rate stock but it is enough to show that the company manages to get down to business.

It is noted that American Express has a tendency to buy back shares since the share count decrease in 2011.  The company has announced that it will return a half of its return on capital to shareholders through a channel of buybacks and dividends. In the beginning of 2012 the buybacks consumed 4 times as much cash as dividend and cash payments. In order for the company to hit analyst targets, it has to grow very little with having a P/E of 12, which will lead to the stock price being undervalued.

This valuation gives away the ownership of 150 m shares by Berkshire Hathaway. Another investor in American Express is Eagle Investment Management, which has reported 9.9 m shares for June 2012. Adage Capital Management has increased its position by 53 per cent for Q2 to 1.5 m shares.

Visa and Mastercard’s P/Es are much above these of American Express – 18 for Visa and 16 for Mastercard. Moreover, they have a small part in Berkshire’s portfolio. Their growth rate was better than that of American Express in Q2 with their revenue being 10 per cent more than it was in 2011. Discover Financial Services has decreased its earnings for Q2 in contrast to 2011. American Express serves as a medium between Discover, Visa and Mastercard since its valuation doesn’t depend on a strong growth rate.