Fisher: Time To Think About Margins

With the bull market around its halfway point, in his estimation, Kenneth Fisher is focusing on “big, fat stocks” — that is, large-caps with fat gross profit margins.

“It works because fat gross margins offer a firm more discretion to fine-tune its future. Invest in more research than peers do. Or market more. Or afford more capital expenditures. Or, or, or!” Fisher writes in his latest Forbes column. “It renders more reliable future earnings — the very theme my research shows that later-stage bull markets love.”

By “fat”, Fisher says he means “above 50% and higher than the industry’s average”. He does note that the strategy didn’t work in the last bull market, “I think because that bull was unusually, and prematurely, truncated”. But, he says, “that boosts the odds this bull market ends more normally. In this case gross and fat mean beautiful.” He looks at a handful of stocks he’s high on that have high gross margins. Among them: tech giant Intel, which has a gross margin of 58 percent.

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