George Soros is a legendary hedge fund investor and market commentator. He has written several books, built a billion-dollar hedge fund, and is most famously known for “breaking the Bank of England.” At the age of 82, he still is active in managing his hedge fund.
While trying to invest like a hedge fund manager is not feasible for the average retail investor, a look at his holdings may provide insights and potential investment ideas. In this article, we will examine three stocks that Soros completely sold out of during the first quarter of 2013.
The Home Depot, Inc. (NYSE:HD)
Home Depot is the leading home improvement retailer and is credited with creating the business model. The chain was founded in 1978 and now operates 2,257 stores across North America. The stock has been performing well in 2013 as the US economy strengthens and the housing market rebounds. However, the housing rebound could already be slowing as a recent report on new housing starts showed that they dropped by 16.5%. If housing development does slow, it will have an impact on The Home Depot, Inc. (NYSE:HD).
The company released its first-quarter earnings on May 21 and the results were strong. Revenues increased by 4.3% and net earnings increased by $200 million. The company “continues to see benefit from a recovering housing market that drove a stronger-than-expected start to the year for our business,” and also raised its guidance for 2013 results based in its year-to-date performance. The company’s stock reached a new 52-week high on the back of these results.
While The Home Depot, Inc. (NYSE:HD)’s recent performance is impressive, it is backward-looking and doesn’t take into account that a slowing housing market could be looming. At a price-to-earnings ratio of 25.59, the stock is pricing in quite a bit of growth. The five-year average P/E is 18.26. If the housing recovery does hit a speed bump, it could cause problems for Home Depot stock. Because of this, at current price levels I would not put new money into Home Depot.
Ford Motor Company (NYSE:F)
Ford Motor engages in the development, manufacture, distribution, and service of vehicles, parts, and accessories worldwide. Ford is currently trading near it’s 52-week high, but the company has major hurdles to overcome. Sales in Europe slipped 15.8% for the month of March versus the same month in the prior year. The company did experience strong results in the US, however, as year-to-date sales were up 12.7% in the US as of April 30.
The company has initiated a major effort in Europe to try to make the unit profitable in the midst of the European recession. They have closed three facilities are reduced production capacity by 18%. They also plan to introduce an unprecedented number of new vehicles over the next five years.
Ford Motor Company (NYSE:F) currently trades at a P/E of 10.24, well above its five-year average P/E of 6.56. The company appears richly valued when you consider the continuing uncertainties in Europe and the fact that US sales could be impacted when the Fed next raises interest rates. While I think Ford is the best stock in the auto industry, I would not add money at these levels and could see scaling back my holdings in the company.
JPMorgan Chase & Co. (NYSE:JPM)
J.P. Morgan is a financial holding company that provides various financial services worldwide. The company hit a new 52-week high after a shareholder vote that allowed Jamie Dimon, the company’s CEO, to maintain the role of Chairman. The vote was triggered by the scandal involving major losses on derivative trades in April and May of 2012. Initially estimated at $2 billion, the loss ended up totaling $6.2 billion.
In the company’s most recent quarterly announcement, JPMorgan Chase & Co. (NYSE:JPM) again reported record net income despite a drop of $1 billion in revenues from the same quarter in the prior year. The company also got past the major issue of having to split the Chairman and CEO roles as only 32% of shareholders voted that the Board should look at splitting the roles.
The company trades at a P/E of 9.35 versus an industry average of 16.97 for diversified financial services. The company also raised its quarterly dividend to $0.38 from $0.30. While the trading loss was very ugly for JPMorgan Chase & Co. (NYSE:JPM) and splitting the roles of Chairman and CEO could have had serious repercussions for the stock, it appears that the company has survived the worst of it. At the current price level, J.P. Morgan has room to grow and should continue to increase its dividend as financial results remain strong.