By Jake Mann
Aside from Warren Buffett, George Soros may be the most widely mimicked hedge fund guru in today's financial world. Though he officially retired in 2011, Soros still manages his own wealth, which is estimated by Forbes to be at least $19 billion. With the pedigree that Soros has, along with the gargantuan pile of assets he still oversees, it's crucial that retail investors pay attention, and our research shows that the consensus picks of the hedge fund managers have historically beaten the market (see full details here).
With that being said, let's take a look at George Soros' top five stock picks as of his latest 13F filing with the SEC, which was in the fourth quarter of last year.
Citigroup (C) received a massive vote of confidence from Soros in Q4, rising to the No. 1 spot in his equity portfolio. The fund manager upped his stake in the banking giant by 435% over this three-month period; Citigroup was just his 50th-largest holding at the end of the third quarter. At a forward earnings multiple below 9.0x and a book valuation that's 30% below parity, shares of Citigroup are obviously cheap, but it's the fact that they're priced below peers like JPMorgan Chase (JPM) and Wells Fargo (WFC) that truly makes them attractive.
Most analysts predict Citigroup to sport above-average earnings growth-about 12.5% a year over the next half-decade-because of its superior footprint in emerging markets, at least in comparison to its similarly sized peers. The sell-side expects JPMorgan, Wells Fargo and PNC (PNC) to average EPS growth in the upper-single-digits over this same time frame.
American International Group (AIG), meanwhile, is hedge funds' new top consensus pick. Soros bought shares of the insurer in Q3, making it his No. 1 overall holding, though he downsized this position by 41% in Q4. Now AIG sits at the No. 2 spot in his equity portfolio, and there's still reason to be bullish on the leaner, meaner post-bailout insurer for the remainder of 2013. Like Citigroup, AIG presents itself as a stellar value play, trading at a measly 0.56 times its book value. The insurance (diversified) industry's average book valuation is 40% higher than this mark.
Pioneer Natural Resources (PXD) is Soros' third-largest holding after seeing the hedgie boost his stake by nearly 50% last quarter. Shares of the oil and gas E&P only gained 2% in Q4, though they've already popped by 24.5% year-to-date. Interestingly, this appreciation has come in the face of a slight EPS miss and the recent announcement that it will hold a public offering of 8 million shares (common stock).
The company has also been cut to "Sell" from "Buy" by one prominent investment bank, and Wall Street's average price target only represents a 1% upside from current levels. Soros' conviction is convincing, though at 2.8 times book, it may be best to wait for a more attractive entry point into this stock.
Adecoagro (AGRO) and Johnson & Johnson (JNJ) round out this top five, and each presents a promising investment opportunity, albeit for different reasons. We've covered Adecoagro a few times before, but the crux of its bullish thesis boils down to arable farmland, and this company has dozens of properties in Argentina, Brazil and Uruguay. Despite the fact that prices here have experienced a similar boom as they have in the U.S., Mr. Market isn't really paying attention to Adecoagro's long-run potential; it trades at a mere parity with its book value per share, which is nearly a 30% discount to its industry's average.
Johnson & Johnson, on the other hand, is fairly valued across the board, but its dividend yield of 3.2% makes it a solid income play for any investors looking for a bit of stability. Revenue diversity is another key strength of this company, and with 67 of the 450 hedge funds we track long JNJ at the end of last quarter, it was the smart money's second-favorite pharma stock, behind Pfizer (PFE). It's difficult to argue with Soros and the general consensus here.
Disclosure: I am long C.