We took a look at several new buys by the sage George Soros. Soros earned his fame by selling short $10 billion worth of British pounds in September, 1992. Soros “broke the Bank of England,” netting $1.1 billion when the pound was devalued. Soros is still a great stock picker. Here is what we found:
JC Penney (JCP): Soros bought 31,600 shares of JC Penney in the latest full quarter. Rising cotton prices are not helping the company's bottom line; however, management has done a good job of cost and inventory control over the last few years. We think shares are fairly valued around $38 apiece on a discounted cash flow basis, using a 10.5% discount rate. The company has a 2.2% dividend yield, and reasonable call premiums for covered call-sellers. The company has plenty of cash flow for a share buy back or a mild increase in the dividend to reward investors.
Microstrategy (MSTR): Soros bought a 23,300 share stake in Microstrategy in the latest full quarter. The company was once a darling during the tech bubble; but, having matured over the last decade, the company shows that its products hold promise. The third release of Microstrategy 9 is fast and functional. MSTR has also recently ventured into providing its business applications on the iPhone and other devices. We think the company is at a valuable intersection of technology and software and could come up on the radar screens of larger competitors.
Agrium (AGU): Soros purchased 10,700 shares of Agrium, a wholesaler of potash, nitrogen and other fertilizers and nutrients used in agriculture. The company also has a retail seed-trait line through its Dyna-Gro product line. The company is a solid food and commodities inflation play, however, shares are fairly valued around $90 apiece using a 10% discount rate. We think growth will be significant over the next few years, and we do expect Agrium to raise its dividend as demand for its products remains strong.
F5 Networks (FFIV): Soros purchased 5700 shares of F5 in the latest quarter. The company has taken some knocks lately, with significant price declines from its 52-week high at $145 per share. We think the company has some great products and a solid management team, and are finally seeing the price come down to more realistic levels. In this case, the share price got ahead of realistic growth projections. We still think shares are fairly valued in the $85 range, and would consider buying below fair value.
Open Table (OPEN): Soros purchased 65,000 shares of OpenTable at an average price around $67 per share in the latest full quarter. Bullish and bearish investors have wrestling with this company, which now has a forward PE of 63. The company has the beginnings of a network moat through its restaurant reservation system. We find the shares to be mildly overpriced on a discounted cash flow basis, but we do expect considerable window dressing as the end of quarter one approaches, March 31.
Arcelor Mittal (MT): Now a steel giant with a market cap of $53 billion, Soros recently purchased 400,000 shares in the company. It trades under a P/E of 20.66, and with a PEG of 0.80, and has a dividend yield of 1.8%. In 2010, MT made $78 billion in revenues, which is an increase of 19.84%. Net income is up to $2.9 billion, an increase of 2371%. EPS also went from $0.08 to $1.72. The ROE is 4.72% and ROA is 2.26%. The 30 day put/call ratio is 0.8, with plenty of opportunity for call buyers interested in long-term price appreciation. Shares are worth $42 apiece, in our view, on the back of strong worldwide steel demand. We use a 10% discount rate.
Northrop Grumman (NOC): Soros purchased just under 55,000 shares of this defense contractor in the latest quarter. While the specter of defense cuts is on the horizon, Northrop has exhibited good cost control. Recently, the company won a $2.5 billion Army contract for general operations planning and training. The company has been good at identifying low-cost basis solutions for the Army, including bringing R&D projects up to speed by leveraging its existing intellectual property.
Steel Dynamics (STLD): Soros purchased 970,000 shares of this steelmaker and iron and steel products manufacturer in the latest quarter. Demand for steel products has been very strong lately, consistent with a worldwide rebound in large commercial construction in China and the Middle East as well as vehicle and construction equipment sales. The latest earnings guidance came in at 37 to 42 cents, above consensus at 38 cents. The dividend rate was raised to 10 cents from 8 cents for the quarter and now stands at 2.1% annually. Rail steel demand should be a key area going forward in both North American and Asian markets.
Union Pacific Corp. (UNP): Soros purchased 118,900 shares of this well networked transportation company in the latest quarter. Union Pacific is leveraged to the coal export boom, which brings Appalacian and Powder River Basin coal to the East and West coast for export to Asia. The company has been trading near its 52-week high, lately, following strong earnings growth over the last year. The next earnings call is April 20th. The company pays a 1.6% dividend and has ample operating cash flows to support it.