Why Does George Soros Love This Data Storage Company?

George Soros is one of the most successful investors of the modern financial world, and while he’s most famous for making $1 billion in the Black Wednesday UK currency crisis, the Hungarian-American is quite the stock picker. Soros Fund Management currently manages a 13F portfolio of close to $7 billion, and is overweight in the technology sector. Here’s a full look at George Soros’s portfolio, conveniently organized for your viewing pleasure.

Aside from well known picks like Wal-Mart and General Electric, Soros is also bullish on the mid-sized data storage company, NetApp Inc. (NASDAQ:NTAP), with a $142 million position at the end of last quarter. Between Q1 and Q2 of this year, Soros has held steady on NetApp, electing to let the stock comprise nearly 2% of Soros Fund Management’s portfolio. Ignoring Soros’s array of fixed-income investments, NetApp is currently the magnate’s fifth favorite equity. Let’s take a closer look at the company, and at some motivations behind Soros’s bullishness.NetApp has been a poor investment since the start of 2012, losing 17.6% while the data storage industry as a whole has returned 16.5%. Many of the company’s peers in this business segment are larger, more well-known names like SanDisk Corporation (NASDAQ:SNDK) and Seagate Technology PLC (NASDAQ:STX), in addition to EMC Corporation (NYSE:EMC) and Teradata Corporation (NYSE:TDC). Out of these competitors, only SanDisk has been in the red in 2012, with Seagate, EMC, and Teradata generating an average return of 44.3% over this time. Clearly, there have been better options in data storage, so the question is: why does Soros remain invested in an industry laggard?

Well, to answer that question, we first have to look at the company’s bottom line. NetApp has beat the Street’s estimates in the past two quarters by an average margin of 6.7%, driven by, as the company’s CEO Tom Georgens put it, advancements in “technology and partnerships.” At the end of the current quarter, which NetApp is expected to release results for in mid-November, the company is forecasted to hit EPS of 48 cents a share. By the end of its current fiscal year, NetApp is projected to reach earnings of $2.10 a share, which is actually below 2011 levels, but analysts do expect this growth to be corrected by 2013.

It’s not quite clear why the company is providing lower guidance for this current year, as bearish growth drivers range from a spotty macro environment to a weakness in the converged stack market, but one thing is clear: NetApp can still provide solid growth over the intermediate term. While there are obvious questions about the company’s competitive alignment within its industry, five-year EPS estimates still expect 12%-13% annual growth, which is more or less in line with Sandisk (13.0%) and EMC (13.9%), and above the likes of Seagate (7.7%) quite significantly. Only Teradata, at 15.9%, is truly expected to blow its peers out of the water, and even this company has some valuation concerns.

Getting to that, NetApp currently trades at an modest forward earnings multiple of 14.2X, slightly above Sandisk (13.4X) and EMC (12.7X), while Seagate (4.3X) is much cheaper due to its lower growth forecast. As expected, Teradata (22.2X) is the most expensive of the bunch on a multiples basis, but we must factor EPS growth into the equation to truly understand how NetApp’s valuation compares to its peers.

The stock currently sports a PEG ratio of 1.72; typically any figure between 1 and 2 signals a fair valuation. More importantly, though, this is below the likes of Teradata (2.00), but below the rest of the bunch discussed above. Seagate is the only stock we’ve discussed that has a PEG ratio below 1.0, signaling that it may be undervalued at the moment.

In comparison to its own historical values, however, we can see why Soros may be bullish on the company, at least from a multiples standpoint. NetApp currently trades at an earnings discount of 44% in comparison to its five-year averages, and sports similar undervaluations in book (-47%), sales (-40%), and cash flow metrics (-46%), despite the fact that the company has generated above average EPS, revenue, and cash flow growth since the recession.

While the lack of specificity regarding NetApp’s lower earnings estimates in 2012 certainly are troubling, investors can be getting a good buy if they, like Soros, believe that this is a one-time hiccup. The company still expects to expand its footprint in the ever-growing data storage industry above double-digits over the next five years, and is trading at a rather attractive valuation at the moment, especially in comparison to its own historical averages.

Besides George Soros, other hedge funds that are currently long NetApp include: Lee Ainslie, Ken Griffin, and Jim Simons. For a complete look at the sentiment surrounding this data storage company, continue reading here, on Insider Monkey.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!