While George Soros is not likely in the day-to-day operations of Soros Fund Management anymore, his two sons seem to have a knack for investing as well. Here’s a look at five stocks the hedge fund has purchased over the past four months.
Exar Corporation (EXAR): Soros has steadily been accumulating shares of Exar since 2009. Exar operates in an interesting niche. Rather than actually manufacture semiconductors, the company simply designs them. Most recently, Soros Fund Management announced adding shares in January, February, March and April of 2011, somewhere in the $5.96-6.37 price range.
On a discounted cash flow basis, we estimate shares are worth upwards of $8.50 apiece, giving investors a good opportunity to buy at the price at the time of writing, $6.13. However, the company does trade on a forward P/E of 76.6 and has a spotty history of generating free cash flow. Something to note is that the company does have a significant amount cash on hand (almost $5.00 per share). And along with Soros, Renaissance Technologies, another hedge fund, owns a 5.34% stake. Adding in Soros’ stake, these two funds own close to 20% of the company.
We think its likely that these smart money investors are building up a large position to influence management to sell the company. At the time of writing, investors have limited downside Exar, in our opinion.
Dendreon Corporation (DNDN): Soros purchased shares purchased shares in this biotech firm focused on the development and commercialization of novel cancer therapies. During the reporting period ending 12/31, he added almost 4.2 million shares.
The likely reason: The Centers for Medicare & Medicaid Services announced recently that it would support reimbursement for Provenge, the first "cancer vaccine." Provenge, an expensive prostate cancer therapy, prolongs patients' lives by an average of four months, and was deemed to be superior enough to existing alternatives that Medicare decided to pay $93,000 for each course of the therapy.
The drug already looked like a potential blockbuster, but the recent news only increases its potential market and likelihood of becoming a moneymaking machine. The drug faces one last regulatory hurdle, but is expected to pass it this summer. Expect larger pharmaceutical companies to come sniffing around once it does. Dendreon trades at $42.27
Delta Airlines (DAL): Soros holds 14.7 million shares, quadrupling his stake in the latest full quarter. Delta should be able to grow revenues at a 7% clip and keep margins around 6%.
The monster of fuel prices will hamper any real growth for the company, along with its high debt load and large number of ancient, fuel-inefficient aircraft. Periodic battles for market share with other established and newer players in the industry will keep a lid on Delta. Delta recently announced that its revenue losses due to the crisis in Japan would amount to $400 million, a significant chunk for the company.
We value shares at $10 apiece, using a 12% discount rate.
Wal-Mart Stores (WMT): Soros added a position in WMT during the reporting period ending 12/31. The king of supply chain efficiency, Wal-Mart maintains positive growth and "cyclicality" seems to be a word with which it's 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.
Just last month, income investors might have been unimpressed by Wal-Mart Stores yield of 2.3%, but a March increase led to the current yield of 2.8%. Making consecutive dividend increases for 34 years, look for this superstore to keep ramping up its dividends.
It’s hard to say which is more impressive: The 34% payout ratio or the near-18%, 10-year dividend growth rate; either way it’s a win for income investors. Just for good measure, factor in that it’s owned by both Warren Buffett and Bill Gates in your calculations.
Ford (F): Alan Mullaly continues to pay down debt and produce cars that consumers want. Ford is still trading at a very low $15.57 per share, well below our fair value estimate of $22.50 per share, on a discounted cash flow basis. EPS for 2011 is forecast at 113% with a five-year projection of nearly 13%.
Broad trends suggest that Ford is steadily 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 announced that Ford will redeem, in cash, all 6.50% convertible trust preferred securities, effectively taking $3 billion in debt off its books and reducing total debt to $16 billion. We use an 11% discount rate for the company.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EXAR over the next 72 hours.