For the past two decades, investment pro Ken Fisher's stock picks have beaten the pants off the market. So when money gurus like Fisher make big moves, investors large and small pay attention. Lucky for us, money managers must reveal their stock maneuvers every quarter in their SEC 13F filings.
Under the hood of Fisher's picks
Of particular note this quarter is Fisher's affinity for bank stocks. Why is he bullish on the sector? In his recent Forbes column he wrote, "Ending quantitative easing steepens the spread between short- and long-term interest rates, since it stops the Federal Reserve's buying of long-term debt (thus lowering future long-term debt prices and pushing rates higher)." As the spread widens, Fisher feels banks' profitability on new loans will increase, spurring them to boost lending. And he feels that gargantuan banks like Bank of America (NYSE:BAC) will fare even better as the bull market rages on.
Because of his thesis, Fisher bought several banking stocks in the third quarter, including an addition to his position in B of A. But it's not all rainbows and unicorns for the too-big-to-fail bank. Just Wednesday, a jury decided that Countrywide Financial -- now part of Bank of America -- defrauded Fannie Mae and Freddie Mac by selling them mortgages misrepresented as high quality. This signifies a huge victory for the government's ability to police deceptive mortgage activities, which played an integral role in the recent financial crisis.
Fisher didn't just stick with megabanks for his additions last quarter. He also entered a new position in regional bank BancorpSouth (NYSE:BXS), which provides a range of financial services to individuals and small- and medium-size businesses. Its system of community banks has roughly 300 locations in nine states, mostly in the Southeast. Low borrowing rates have spurred loan activity for BancorpSouth. During the most recent quarter, the $2 billion-market-cap company delivered 4.3% annualized net loan growth at its BancorpSouth Bank and posted a 9-basis-point increase in net interest margin. The stock is up an impressive 49% year to date.
American Equity Investment Life Holding (NYSE:AEL) also sparked Fisher's interest. The Iowa-based underwriter of annuity and life insurance products primarily focuses on the sale of index and fixed-rate annuities. Fisher may be optimistic about the $1.3 billion-market-cap company, but many investors appear bearish. Currently, more than 28% of the float is sold short, signifying a decent level of pessimism about the stock. Yet despite the bearishness, both assets under management and operating income per share have been moving higher for the company.
Bank of America, Bancorp South, and American Equity possess forward price-to-earnings ratios of 11, 18, and 9, respectively. By comparison, the P/E ratio of the S&P 500 is currently 18, signaling Bank of America and American Equity may be undervalued. The Motley Fool CAPS community gives both Bank of America and Bancorp South three stars (out of five). Meanwhile, our CAPS community has a more favorable outlook for American Equity Investment Life, which is deemed a five-star stock.
Fisher is certainly feeling bullish on banks right now. But don't take his opinion as the last word. Carry out your own research and formulate your thesis. You'll be a better investor for it.
Fool contributor Nicole Seghetti owns shares of Bank of America. You can follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.