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

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways 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

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

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!