Google Inc (GOOG), LinkedIn, Walgreen: Billionaire George Soros’s New Stocks

George Soros’s Soros Fund Management filed its 13F with the SEC earlier this month (find out what stocks Soros reported owning and read our analysis of his activity during the third quarter). By comparing 13F filings for the end of September with filings for the end of June, we can identify new positions in a hedge fund or other notable investor’s portfolio- stocks which they had only started buying during the quarter, and which therefore are at least somewhat fresh stock picks. Here are Soros Fund Management’s five largest new positions for the third quarter of 2012:

setting up a hedge fund

The largest new holding in Soros’s portfolio was the 15 million shares of American International Group, Inc. (NYSE:AIG). AIG climbed all the way to #3 in our rankings of the most popular stocks among hedge funds (see the full list) after Soros and many other investors in our database of 13F filings got into the stock. AIG is up 54% over the last year but still trades at about half the book value of its equity. The company’s revenue has been growing, profit margins are decent, and the forward P/E multiple is only 9. We think that while the stock shouldn’t be trading at book value- there’s too much uncertainty regarding its assets- it’s likely undervalued at these prices.

Soros also initiated a position in Pioneer Natural Resources (NYSE:PXD), with 1.4 million shares at the end of the quarter. Pioneer is an oil and gas exploration and production company whose reserves are concentrated in the onshore U.S. However, earnings are down significantly at the company even though revenues are up and close to 10% of the outstanding shares are held short, suggesting that at the current valuation (which is 20 times consensus earnings for 2013) a number of market participants consider it overvalued. We don’t think that it’s a good stock to buy.

Google Inc (NASDAQ:GOOG) was another of Soros’s new picks with Soros Fund Management initiating a position of about 190,000 shares. Google’s earnings dropped 20% in the third quarter versus a year earlier as the addition of Motorola Mobility Holdings boosted revenue but held down the bottom line. The market expects Google’s financials to improve, and the company trades at 21 times trailing earnings. We would expect to see better numbers from Google’s core business but would hold off on investing until we are more confident that the Motorola division will contribute to profits as well.

Soros bought shares of Linkedin Corporation (NYSE:LNKD) during the quarter as well. Linkedin continues to be, frankly, a speculative stock as its forward P/E is 83- and even that is predicated on a high earnings growth rate over the next year. The company does have good prospects, and its historical growth is strong, but investors’ expectations seem to be too high. We wouldn’t buy the stock and think that we would consider a short position if there are signs that its growth rate is slowing down. We’d keep any short small, however- Linkedin has been seeing high multiples for some time yet is still up 54% in the last year.

The fund also liked Walgreen Company (NYSE:WAG), buying 3.6 million shares. The pharmacy has emerged from its struggle with Express Scripts with some damage to its business (revenue was slightly down in its most recent quarter versus a year earlier, which cut net income about in half) but the industry looks good going forward. Walgreen has a trailing P/E multiple of 14 with strong growth expectations from sell-side analysts and a dividend yield above 3.4%. As a result we think that it could be a good stock to look at further in case it’s able to get some earnings back, though we’d want to compare it to CVS and other pharmacy-related stocks before buying.

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