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5 Stocks George Soros Loves Right Now - views
BALTIMORE (Stockpickr) -- It probably goes without saying that George Soros is a polarizing figure. Ever since throwing his weight around in political circles, the Hungarian transplant has earned his fair share of fans and detractors.
But while his politics are one thing, his success as a hedge fund manager is less up for debate.
Soros earned fame as an investor at the internationally focused Quantum Fund with Jim Rogers, a hedge fund family that’s managed by his firm, Soros Fund Management. With SFM at Quantum’s helm, the fund has crushed most investors’ returns, earning a reported 20% return annually for the last four decades.
But last year, Soros got out of the investment management game, returning money to investors and effectively becoming a $20 billion family office. Despite closing its doors to outside money, Soros Fund Management still has close to a hundred investment professionals on staff, tasked with earning outsized returns for their boss’ billions.
Last quarter was an active one for Soros and company – according to the firm’s 13F filing for the second quarter of 2012, the firm added 69 new positions to its portfolio, dramatically changing the fund’s makeup. But look a bit closer and it’s clear that there are some names that Soros Fund Management prefers. While the firm added close to seventy names to its holdings, the money was concentrated on a handful of picks.
Today, we’ll take a closer look at that buying to find five stocks that George Soros loves right now.
SFM’s biggest buy last quarter was retail behemoth Wal-Mart (WMT), the biggest retailer in the world with almost $450 billion in revenues across more than 10,000 stores. Soros wasn’t alone in loving Wal-Mart -- before his firm filed their 13F, Wal-Mart was already hedge funds’ favorite consumer stock for last quarter.
But Soros’ toe-dipping into this position makes it a standout. SFM picked up 4.83 million shares of WMT in the second quarter, picking up a stake worth $337 billion at last count.
Wal-Mart has established itself as the world’s price leader, carving out a challenging but lucrative niche in retail. Wal-Mart’s model is built on scale -- without the scale to pull off pricing power with suppliers, WMT couldn’t pull it off. But the firm does, and it manages to move mountains of products at small, predictable margins each quarter. With the economy continuing to be a headline-grabbing rollercoaster, Wal-Mart’s positioning at the bottom of the retail chain should continue to look attractive.
Meanwhile, international growth is clearly the place where WMT has the most room for improvement. The firm's overseas stores, located in 26 countries, have historically been a drag on earnings, and they continue to underperform their domestic counterparts. The U.S. business is pretty predictable, but if WMT can find a fix for its international problems, it would be a coup for patient shareholders.
Data storage is NetApp’s (NTAP) bread and butter. The firm sells the hardware, software, and services that firms’ IT departments need to store data and back-up data. As increasingly plugged-in services like cloud computing drive demand for more and more storage space, a rising tide should keep lifting all boats, NTAP included.
NetApp is one of the few pure-play storage firms that have been around for a while. As a result, the firm has the advantage of a large customer Rolodex and an established niche in the data game: providing network-attached storage devices that enterprise customers can buy piecemeal rather than just as part of a hugely expensive infrastructure project. So while new comers are coming from the PC-building industry to try to snag share of the storage market, NTAP has some decent defenses already established.
From a financial standpoint, NetApp is in stellar shape with just $1.2 billion in debt (none of it long-term) more than offset by $5.4 billion in cash. Despite a relatively high P/E, the fact that more than a third of NTAP’s market capitalization is paid for in cash changes the game a bit.
Soros and company agree. The fund bought 4.48 million shares of NTAP for a $142 million stake.
EQT (EQT) is an $8 billion natural gas firm that’s involved in every stage of the natgas lifecycle from producing from its reserves of 5.4 trillion cubic feet in the Appalachian Basin all the way to its regulated utility business in three Mid-Atlantic and Southern states.
Soros Fund Management picked up 1.5 million shares of EQT in the second quarter, building an $81 million position in the stock.
Like most peers, EQT has seen its share prices hampered by the slow decline in natural gas prices that’s been taking place for the last few years. The math is simple: the lower natural gas prices go, the less of a spread EQT can collect between the cost of pulling natgas out of the ground and the price the firm can sell it for. While nat gas prices aren’t likely to skim the bottom indefinitely (particularly as substitutes, like crude oil, test new highs), the last few years have proven to gas bulls that price increases are going to take time.
Until commodity prices for EQT’s product start rising again, the firm is going to have trouble stimulating its share price –- particularly when there are plenty of alternative midstream natgas plays that pay out much bigger dividends. EQT has an attractive balance sheet and a huge source of low-cost reserves, but unless you’re a natural gas super bull, I’d recommend looking for alternatives.
Thus far, 2012 has been a standout year for the Walt Disney (DIS). Since the first trading session of January, shares of the $89 billion media firm have rallied more than 32%.
Soros Fund management has been along for the ride. The firm initiated a position in Disney in the second quarter, buying just over a million shares for a $51.5 million stake in the firm.
While Disney is best known for characters like Mickey Mouse, Donald Duck, and Winnie the Pooh, the firm’s most lucrative characters just might be the ones donning NFL jerseys for the preseason right now. Disney’s ESPN unit contributes more than three-quarters of Disney’s cable sales, and much of its success comes from its lucrative Monday Night Football deal with the NFL. Disney’s ability to earn truly meaningful revenues in noncore businesses is telling.
Disney’s core businesses, meanwhile, are looking pretty good as well. Movies remain a higher risk venture, but they have the bonus effect of creating intellectual properties that the firm can use to develop rides at parks, broadcast on its cable channels, and turn into merchandise.
While Disney may be a quintessential blue chip name, investors shouldn’t think that the business is boring. It should continue to do well in 2012, particularly given its relative strength over the last eight months.
Clorox (CLX) is the firm behind brands such as Glad, Hidden Valley and Brita, in addition to the firm’s household-name bleach products. That positioning makes Clorox one of the biggest household product companies in the world, and an extremely profitable one at that.
Clorox boasts net margins that are consistently in the double-digits, which means that the firm is able to pass a considerable chunk of its sales down to the bottom line of its income statement. That’s important given the cost inflation worries that investors have been harping on for the last few years.
CLX is a diversified business, with sales split up among its different brands. That lack of concentration on a single unit is a very good thing for investors -- it means that headwinds in a single product category are much less likely to ruin the firm’s results. The only concentration Clorox has comes from its geographic positioning; currently around 80% of the firm’s sales are in developed OECD countries, a fact that opens CLX up for big growth possibilities in emerging markets.
Soros Fund Management picked up 675,690 shares of Clorox in the second quarter, building up a $49 million position in the company.
To see the rest of George Soros’ favorite stocks, check out his updated portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
Disclosure: Author holds no positions in the stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.