Investing legend George Soros is known for actively managing his portfolio. At the time of writing, Soros Fund Management LLC has 837 positions. He initiated or added positions in all the stocks below during the last reporting period. Here are 14 of them along with some commentary on each.
Wal-Mart Stores (WMT): The king of supply chain efficiency, Wal-Mart maintains positive growth and cyclicality seems to be a word with which they are unfamiliar - at least in the negative sense of the word. Wal-Mart is the classic trading down name, which has strengthened it, feeding its 5.5% free cash yield, over the period of economic depression in the United States. Simultaneously, Wal-Mart is a massive growth story in emerging markets where it represents quality and value in the eyes of the rapidly growing middle classes. As the growth story continues in these markets and consumers the world over seek out bargains and value, Wal-Mart, with its consistent, vicious assault on inefficiencies, looks set to remain strong for a long, long time. Attention Investors: some analysts do currently see the stock as undervalued so it may be time for investors to review it themselves.
Petroleo Brasileiro (PBR) This massive Brazilian producer has been boosted recently by the major discovery of reserves off the Brazilian coast. This type of extraction is more costly than traditional extraction, so, as prices for oil rise, the justification and margins on this type of extraction grow. Libyan instability leads to spike in oil prices which leads to increased value of PetroBras’s reserves. That said, this type of extraction is also known for its long-term nature. That means that investors are aware that the benefits of the reserves will be elongated over a period of time so momentary shakes to the oil market can have less of an effect on the stock.
Oracle (ORCL) made $31.99 billion in revenues and $6.77 billion in profits in the 12 months through November 2010. These were respective increases of 37.7% and a 16.7%, from the previous 12 months. Profit and EBT margins were 75.38% and 28.4%, respectively. For FY 2010 that ended in May, profit and EBT margins were 78.5% and 30.7%, respectively. ROIC was 14.46%, and 14.75% in FY 2010. The current ratio is 2.45 with a D/E of 0.43. The most recent EPS was $1.33 with a P/E of 24.7.
The company has yet to give guidance on earnings for Q3 2011, although analysts give estimates of $0.42 to $0.50 for EPS. This would project $1.53 to $1.61 in EPS through the end of Q3 2011. The equivalent figure through Q3 2010 was $1.11. The 30 day put/call ratio is 0.8.
Delta Airlines (DAL): Delta should be able to grow revenues at a 7% clip and keep margins around 6%. Fuel prices will hamper any real growth for the company, however. Periodic battles for market share with other established and newer players in the industry will keep a lid on Delta. We value shares at $10 apiece using a 12% discount rate.
Ford Motor Company (F) This classic name, responsible for 17% of the U.S. automotive market, is trading at a very low $15/share, well below fair value in the low 20s on a discounted cash flow basis. EPS for 2011 are forecast at 113% with a five-year projection of nearly 13%. Broad trends suggest that it is stealthily improving its position in the competitive landscape: a consolidation of brands, a gain in market share over the past year and the shedding of debt. On this last point, it was just announced that Ford will redeem, in cash, all 6.50% convertible trust preferred securities, effectively taking off $3 billion dollars in debt from its books and reducing total debt to $16 billion. As earnings announcements loom, these dual events could act as a catalyst to bring its stock price nearer to fair value. It remains treacherous out there, however, as oil pushes higher and Ford’s product mix is notoriously truck heavy. Last month we wrote about a Ford put option play here.
Lowe’s Corporation (LOW): Lowe’s we expect sales growth averaging 5% and a low single-digit increase in average store footage as Lowe’s emphasizes sales of branded goods. Lowe’s should also be able to keep administrative, selling and IT costs in check, consistent with its recent operating history. As a result, margins should gradually inch northward from last year’s 6.8%. Shares are worth more than $32 apiece with reasonable assumptions.
Apple (AAPL) put up a ROIC of 36.8%, for the trailing 12 months ending in December 25, 2010, and also produced $76.28 billion in revenues. Profit and EBIT margins were 38.76% and 28.5%. ROE was 36.8%. Ending in September, profit margins in 2010, 2009, 2008, 2007, and 2006 were, 39.38%, 40.14%, 34.3%, 33.97%, and 28.98%.
The respective EBIT margins were 28.4%, 28.1%, 21.2%, 20.86%, and 14.59%. The current ratio is 1.85 with a D/E near zero. Apple shares trade under a P/E multiple of 19.1, given that the most recent annualized EPS is $17.93. EPS also grew 75.2% over the past 12 months. The 30 day put/call ratio is 0.7. Given the put/call ratio of below 1, most investors believe that AAPL is undervalued. The computer hardware sub-industry has an average profit margin of 7.57%, ROE of 30.1%, D/E of 0.42, and P/E of 16.5.
On Thursday, February 24, Intel introduced "Thunderbolt technology," a new high-speed PC connection technology. Running at 10Gbps, this permits the transfer of a full-length HD movie in less than 30 seconds. This was developed in technical collaboration with Apple, and is available first on Apple’s new line of MacBook Pro laptop computers. To learn how much we think Apple is worth per share, see our recent article.
United Continental (UAL): United overpaid for Continental Airlines, and the company will face a tough job continuing to integrate the airline over the next few years. Competitors, both established and new, as well as significant fuel price increases will hamper this company. UAL can grow revenues with higher ticket prices and we expect mid margin expansion due to synergies developing, albeit at half the $1 billion figure offered by management. We value shares at $23 apiece using a 12% discount rate.
Home Depot (HD): Home Depot has benefited greatly from Bob Nardelli’s replacement with the current CEO, Frank Blake. Executive compensation is much more reasonable and the board of directors sports eight independent directors including corporate-governance consultant Bonnie Hill. Blake sold off most of the lower-margin HD supply business in 2007 and wound down the Home Depot EXPO design centers that were a distraction to the core business.
Going forward, we estimate sales growth of 5%, comparable to Lowe’s, with operating margins reaching 10% after several years relative to last year’s 7.3% as the company capitalizes on a revamped supply chain, merchandising and pricing automation. Shares are worth $45 apiece.
Cisco (CSCO) made $42.36 billion in revenues in the trailing 12 months ending in January 2011. This was an increase of 19.2% from the same period a year ago. For FY 2010 (August 2009 to July 2010), revenues grew by 10.86%. Net income rose by 24.8% to $7.57 billion, whereas in FY 2010, they increased by 26.6%. The return on invested capital was 12.56% versus 14.3% in FY 2010. The EBT margin was 21.19%, but 23.5% in FY 2010. Also, the profit margin was 62.4%, and 64% in FY 2010. The current ratio is 2.81 with a healthy debt to equity ratio of 0.27. The most recent EPS was $1.32, implying a P/E of 14.
The company forecast a Q3 EPS of $0.35 to $0.38 per share. So, the EPS would be $1.30 to $1.33 for the 12 months thru the end of Q3. That would still be an increase of 10.1% to 12.7%. The PEG ratio falls in the range of 1.10 to 1.38. Moreover, the 30 day put/call ratio is 0.5.
Recently, Cisco announced its intent to acquire privately held Pari Networks, a leading provider of network configuration and change management and compliance management solutions. The Company also completed the acquisition of privately held LineSider Technologies, a leading provider of network management software that helps customers build the network services necessary to securely create and deploy cloud computing infrastructure. In addition, Cisco and BMC Software forged a strategic alliance to develop and market new solutions for large-scale, multi-tenant cloud computing infrastructures.
Since the Q2 earnings announcement on February 9, CSCO share price is down 15.6%.
Liberty Starz Group (LSTZA): This $3.4 billion dollar company operates in the video programming space and owns a number of premium cable channels, namely Starz, Encore, IndiePlex, MoviePlex and RetroPlex. And as of 9/30/2010, Klarman holds 1,000,000 shares, or 2.04% of shares outstanding and may be continuing his purchases. Notably, a number of other value investors, including Jean-Marie Eveillard and Third Avenue Management, are also shareholders.
Shares have appreciated relative to Klarman’s average buy prices (between $51.39 -$65.12), but the company will continued to benefit from growth in streaming video. LSTZA’s streaming rights contracts with Disney (DIS), and Sony (SNE) films cover production and new releases through 2015, and the outcome of a potentially lucrative licensing renewal contract between Starz and Netflix (NFLX) is on the horizon in 2011. Our fair value estimate is $72 a share. Guru Seth Klarman is also a shareholder, as we wrote about here.
Transocean (RIG) The company made revenues of $9.57 billion in 2010, which was a decrease of 20.6%, after falling 8.8% in 2009. Transocean is the world’s largest offshore drilling contractor. It helps its clients find and develop oil and natural gas reserves. We think you should watch this company if the unrest spreads to Saudi Arabia.
General Motors (GM) When coming from such lows, mega highs are needed to get back up. EPS estimates for this year are thus, understandably hyperbolic: 574%! (For some leveled perspective, GM is looking at a much more reasonable five-year EPS projection of 24%.)We’ll see this week if we’re on track. The leader of the U.S. car market, with 19% of it in its pocket, GM has fought a very rocky battle over the past few years. With new leadership that has an eye on a clean debt book, a condensed and somewhat diversified product portfolio and healthy North American operations it looks like GM, dependent on consumer behavior of course, might be able to take off its boxing gloves for a bit, or at least get itself out of the corner and land some punches of its own.
Chevron (CVX) produced 98,000 barrels per day of oil equivalent, 94,000 barrels per day of crude oil and natural gas liquids, and 23 million cubic feet of natural gas from the Partitioned Zone between Kuwait and Saudi Arabia in 2010. To put this in perspective, in 2010, 2,763,000 barrels per day of oil equivalent, 1,923,000 barrels per day of crude oil and natural gas liquids, and 5,040 million cubic feet of natural gas were produced.
The company also continued to evaluate data from a steam injection pilot project that was initiated in 2009. The pilot is an application of steam injection into a carbonate reservoir and, if successful, could significantly increase heavy oil recovery. No proved reserves have been recognized for this project. Moreover, assessment of alternatives continued on the company’s Central Gas Utilization Project to increase natural gas utilization and eliminate routine flaring. A final investment decision is expected in 2012. No proved reserves have been recognized for this project.
According to the US Energy Information Administration, this zone was left undefined in 1922. It is 2230 square miles of real estate between the borders of Saudi Arabia and Kuwait. Most importantly, it contains an estimated 5 billion barrels of proven oil reserves, shared between the two countries, from which ~600,000 barrels per day are produced. Yesterday, we wrote about a safe option play on Chevron here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.