How does George Soros invest? Opinions of George Soros vary depending on whom you ask, but there’s no arguing against the Hungarian-American hedge fund manager’s investing pedigree. Earlier this month, Soros shared his thoughts on the Eurozone crisis at the Global Economic Symposium, and most of the usual headlines that surround the billionaire are focused on his macroeconomic views.
That’s all fine and dandy. We’d like to point out, though, that George Soros’ Soros Fund Management does maintain a $9 billion equity portfolio too. Due to the market-beating potential of hedge funds’ best stock picks (discover how we returned 47.6% in our first year), it’s useful to understand how a prominent investor like Soros is playing the stock market.
At the end of last quarter, George Soros and his management team disclosed a little over 200-equity holdings, with 15% of their capital allocated to their top five stock picks. This level of concentration is not uncommon for a large hedge fund, but a few of the specific names may surprise you.
Other than Google Inc (NASDAQ:GOOG), that is. It’s really not very difficult to understand why the tech company is Soros’ No. 1 stock. Google was hedge funds’ favorite pick in the latest round of 13F filings, ahead of American International Group Inc (NYSE:AIG) and Apple Inc. (NASDAQ:AAPL). Aside from offering a bevy of long-term product innovations like self-driving cars or smart thermostats, more immediate catalysts are the launch of the Moto X and next year’s release of Google Glass.
Both devices play into Wall Street’s bullish earnings estimates for Google, in which it expects 17% to 18% EPS growth in 2014 and 15% annual growth over the next half-decade. This trumps peers like Yahoo! Inc. (NASDAQ:YHOO) and even Apple. In addition to Soros’ bullishness, big-name fund managers Ray Dalio and Israel Englander have initiated Google positions in the last few months.
J.C. Penney
This is what we meant when we said you might be surprised. J.C. Penney Company, Inc. (NYSE:JCP) represents everything Google does not: poor market performance in 2013, high CEO turnover, an inconsistent business plan, and an uncertain future. The retailer is going back to its pre-Ron Johnson coupon strategy, which leads some to believe that it can recapture most of its old customers, and is thus undervalued at current levels.
It’s easier to be skeptical of this move than it is to support a bullish thesis, so we have a rare case where Soros is acting as a contrarian by betting on a stock rather than against it. Assuming you are for a turnaround here, J.C. Penney trades at a mere 0.15 times sales, but earnings will have to pick up. Longs can’t take many more monumental bottom line whiffs. Last quarter the retailer missed sell-side estimates by 88%, and in the first quarter of the year, EPS fell short of consensus by 36%. In fact, J.C. Penney has been in the red for a year and a half now.
