George Soros is best known for his global macro investing, particularly in currencies and most particularly for his short of the British pound in 1992. Soros Fund Management also invests in equities, however, and we have gone through the fund’s positions that it reported in its second quarter 13F and compared these positions to those in previous filings. Here are some trends we noticed:
Megacaps. Soros initiated a 4.8 million share position in $240 billion market cap discount retailer Wal-Mart Stores Inc (NYSE:WMT), which according to the 13F made it the largest stock position in the fund’s portfolio, and boosted his stake in $220 billion market cap conglomerate General Electric Company (NYSE:GE) from 1.3 million shares to 8.6 million. Wal-Mart, as a discount retailer, has little exposure to the broader market for such a large cap company (its beta is 0.5) and trades at 16 times trailing earnings. GE trades at 18 times trailing earnings, but sell-side analysts are optimistic about its prospects and the forward P/E is only 12. GE offers a 3.2% dividend yield at current market prices, while Wal-Mart Stores Inc (NYSE:WMT)’s dividend yield is 2.5%. Both of these large companies should be fairly safe from any U.S. or global slowdown.
Gold. The approximately 320,000 shares of GLD that Soros owned at the end of April had become about 880,000 by the end of June, representing a large increase in his exposure to gold. John Paulson has been bullish on gold and gold miners for some time, and added to these positions in the second quarter of the year as well. Combined with the investments in Wal-Mart and GE, we read Soros’s activity as being defensive against economic uncertainty- gold should do well in such an environment, as should megacaps in stable businesses which pay good dividends. On a value basis gold doesn’t have much to offer, but defensive-minded investors can consider it alongside value stocks in stable businesses.
Westport. The fund increased its position in Westport Innovations (NASDAQ:WPRT) from 3 million to 4.1 million shares. Westport is a pure growth play: Soros is investing in the company’s low-emission engines for cars, trucks, buses and other vehicles, which are designed to run on natural gas, diesel, or alternative fuels. The $2 billion market cap company is unprofitable on a trailing basis and is expected to have negative earnings this year and next year, but the market opportunity is attractive even on a non-environmentalist basis as natural gas production continues to boom in the U.S. and signal continued low prices for the commodity in the future. Over the last year the stock is up nearly 60%. It’s also started to get some attention from hedge funds: John Griffin initiated a small position in the second quarter of the year.
Netapp. Soros added Netapp (NASDAQ:NTAP) to his portfolio in the second quarter of 2012, purchasing 4.5 million shares by the end of June. Netapp provides network data storage and markets its products to customers in energy, financial services, and other sectors. In its most recent quarter the company reported a 19% increase in revenue and a 13% increase in earnings compared to the same period the previous year, and Wall Street analysts expect that it will continue to deliver growth. It trades at a forward P/E multiple of 13, compared to a P/E of 20 on a trailing basis. As with many larger tech companies, Netapp has a large amount of cash on its balance sheet.
We see a growth case for Westport Innovations but we would prefer to have some positive earnings come in and then see where its valuation stands before recommending it as a buy. We’re not particularly familiar with Netapp, another stock that Soros appears to be buying with an eye towards company-specific growth, but would be interested in comparing it with its peers to see if its growth rate and multiple make it a buy against other companies in the industry. As far as what we see as Soros’s macro move here- taking cover in Wal-Mart Stores Inc (NYSE:WMT), General Electric Company (NYSE:GE), and gold- we’ll put this top investor under “bearish” and consider that a plus for value and dividend stocks accordingly . Of the three, Wal-Mart would be our pick.