George Soros doesn’t really need any introduction. Soros is known as “the man who broke the England” because he made $1 billion during the 1992 Black Wednesday UK currency crisis. According to Forbes, Soros is the 5th richest person in the United States. He has a net worth of $22 billion as of September 2011. We like George Soros. Between 1979 and 2011, he donated more than $8 billion to human rights, public health, and education causes.
Recently Soros released his latest holdings in a 13F filing. Soros had spectacular returns in the past, returning an average of 30.5% per year between 1969 and 2000. Soros also returned 8% during 2008, while most hedge funds suffered huge losses during that tough year. In this article, we are going to take a closer look at the most bullish bets of Soros and decide whether it makes sense for investors to follow Soros’ stock picks.
Motorola Solutions Inc (MSI): MSI is the largest non-bond position in Soros’ 13F portfolio. At the end of last year, Soros had $233 million invested in MSI. A few other hedge fund managers were also bullish about MSI. At the end of the third quarter, there were 24 hedge funds with MSI positions in their 13F portfolios. Besides Soros, Carl Icahn’s Icahn Capital LP also had more than $1 billion invested in MSI at the end of September. Although its high-growth mobile devices division was spun off and sold to Google, MSI still has strong revenue growth as well as strong cash flow. The company also announced at the end of January that it has authorized an additional $1 billion to be used in its share repurchase program. In July 2011, the company has already announced a $2 billion share buyback program. MSI has a forward P/E ratio of 14.59 and its EPS is expected to grow at an average of 12.43% per year over the next five years. This means that its 2014 P/E ratio is around 11.5, which is almost the same as 11.8 for Nokia Corporation (NOK). We are actually neutral about MSI. The stock is neither cheap nor expensive.
Google Inc (GOOG): GOOG is also a large position in Soros’ portfolio. Soros initiated a brand new $579,000 position in GOOG over the third quarter and significantly increased its GOOG stakes over the fourth quarter. At the end of last year, Soros had $168 million invested in GOOG. GOOG is very popular among hedge funds tracked by us. There were 96 hedge funds with GOOG positions at the end of the third quarter. For example, Stephen Mandel’s Lone Pine Capital had $483 million invested in GOOG at the end of September. Ken Fisher, John Griffin, and Boykin Curry were also bullish about GOOG. We agree with these hedge fund managers. Google has been expanding in multiple areas including social media and display advertising. It also has reasonable debt levels and attractive valuations. GOOG has a forward P/E ratio of 12.26 and its EPS is expected to grow at 18.85% per year on the average in the next five years. So GOOG has a 2014 P/E ratio of 8.7, compared with 12.8 for Yahoo Inc (YHOO).
GOOG is not alone among tech giants with low valuations. Hewlett-Packard (HPQ) and Apple Inc (AAPL) are also trading at attractive multiples. HPQ’s 2014 P/E ratio is around 5.8 and AAPL’s 2014 P/E ratio is around 7.6. Soros is bullish about AAPL too. His fund increased its AAPL stakes by 14% over the fourth quarter. It had about $40 million invested in this stock at the end of last year. We like these tech stocks and we believe they will outperform the market on the average over the next 12 months.
A few other large positions in Soros’ portfolio are Interoil Corp (IOC) and Adecoagro SA (AGRO). The fund had over $200 million invested in both positions. IOC does not seem to be very attractive though. It has an extremely high forward P/E ratio of 933.57. There are dozens of energy companies trading at very attractive multiples. We think IOC is a very risky bet.