Acacia Research Corporation (NASDAQ:ACTG) is the second largest small-cap stock in Soros’s portfolio, worth a little over 1.1% of his total 13F holdings. The company and its subsidiaries matches patent owners and inventors to corporate partners. Acacia holds 250 different patent portfolios, for use in medicine, media, IT and energy. Oil and gas production is the company’s latest play as we head into the third week of 2013.
Some bears may cry “troll,” while others may believe that its business model is perfectly legitimate, but the fact is this: the number of patent portfolios under Acacia’s banner has close to quadrupled over the past half-decade. The sell-side expects earnings growth of 38% annually through 2017. At a price-to-earnings growth multiple near 0.7, the markets are clearly undervaluing these prospects, and we’ll be watching Acacia’s presence in the energy industry closely. Famed “magic formula” man Joel Greenblatt was also quite bullish on this company in his last 13F filing (see all of Joel Greenblatt’s stock picks here).
Internet-based photo publishing service Shutterfly, Inc. (NASDAQ:SFLY) is George Soros’s third largest small-cap investment. The hedge fund manager owns about 8.4% of Shutterfly’s outstanding shares, with short-sellers shorting another 21% of the company. Despite this abnormally high level of bearish investors, shares of Shutterfly have actually gained 9.2% since the start of the year, on the back of an upgrade from Topeka Capital Markets and the acquisition of ThisLife, a cloud-based media storage provider.
Topeka now holds a $40 price target on the stock, specifically citing the belief “that current competitors will continue to struggle to achieve sustained profitability.” Generally speaking, Wall Street sees an upside of 15-16% from these levels. At depressed book (1.9x) and sales (2.2x) multiples, Shutterfly offers investors value as well.
Cheniere Energy, Inc. (NYSEAMEX:LNG), the liquefied natural gas company, sits at No. 38 in Soros’s 13F portfolio, and is his next largest small-cap holding. Cheniere has been a beast since mid-November, gaining over 40% in value. As its ticker symbol suggests, the company is currently the U.S.’s only approved LNG export terminal. The Department of Energy’s Federal Energy Regulatory Commission believes the site will have the capacity to ship 2.6 billion cubic feet of gas per day when export activity commences in late 2015.
While it remains to be seen exactly how many of Cheniere’s peers—like Dominion Resources (NYSE:D), for example—will gain terminal approval, forward-looking investors can take solace in this exclusivity at the moment.
Last but certainly not least, rounding out our top five is US Airways Group, Inc. (NYSE:LCC). US Airways is closing in on a merger with American Airlines, which if completed, should generate around $500 million in cost savings and additional revenues close to twice this estimate. Up 9.5% in the New Year, investors are certainly cheery on the prospects of a deal being done, but it’s worth noting that in isolation, LCC still trades at a measly 0.18 times sales. The iconic David Tepper and his fund, Appaloosa Management, are also bullish on US Airways (check out David Tepper’s full equity portfolio here).
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Disclosure: I have no positions in any of the stocks mentioned in this article