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.
Google
Other than Google
[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 AIG [AIG] and Apple [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 [s: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 [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.
A few days ago, Richard
Perry cut almost half of his position in the retailer and last month, Bill Ackman liquidated his entire stake. What’s so notable about
both of these moves is that Ackman’s hedge fund had the largest stake in J.C.
Penney at the end of last quarter while Perry was third.
The remaining three
After the
antithetical duo of Google and J.C. Penney, Soros’ next largest holdings are Herbalife
[HLF], Charter Communications [CHTR] and Johnson & Johnson [JNJ].
While Ackman and Carl
Icahn continue to feud about the legitimacy of Herbalife’s marketing practices,
George Soros continues to book gains. Since we know that he held shares of the
company on the last day of June, it can be inferred that Soros has made at
least a 51% return on his long position. If he initiated the stake earlier in
the second quarter, like in early May for example, this return stretches to
more than 70%. Either way, the billionaire has to be happy that it represents
one of his biggest holdings.
Charter
Communications, meanwhile, is another stock that is up big (+72%) in 2013. The
cable entertainment company has been a long-term pick for Soros, sitting in his
clutches since early 2011. The same can be said for Johnson & Johnson,
which has been in Soros’ equity portfolio for exactly four quarters. Johnson
& Johnson is a prototypical dividend-payer that has actually offered
double-digit capital gains this year, while Charter is a growth play plain and
simple.
All in all, the
variety presented in George Soros’ five largest stock picks is truly one of the
best things about this group. Google, J.C. Penney and Herbalife are the three
we’ll watch the closest going forward, particularly when new 13F filings come
in mid-November.
Disclosure: none