Here is my brief analysis and take on George Soros’s top holdings:
Visteon Corp (VC) is a leading global supplier of climate, interiors and electronic systems. The company was established in 2000 after its spin off from the Ford Motor Company (F). Geographically, North America, Europe and Asia account for 40%, 35% and 35% of sales respectively. Ford and Hyundai (OTC:HYMLF) are its largest customers, contributing to a total of 54% its sales.
Riding on strong Q1 performance, Visteon is expected to continue its growth story further. Visteon started its restructuring in 2005 and through the half decade of its restructuring, Visteon now has no UAW workers, no retiree healthcare obligations and 61% of its headcount is in low cost countries. It is also expected to be the beneficiary of the expected Japanese short supplies for Hyundai and Ford. Full acquisition of Halla is also expected, further adding to Visteon’s strength. At Visteon’s Chinese JV, Yanfeng, sales were up 37% year-over-year (yoy), despite declining Chinese auto sales. As far as Q1 is concerned, Climate margins were weak, but Electronics and Interiors posted better than expected results. As per consensus estimates, Visteon has a mean price objective $82.
Citigroup (C), is a globally diversified financial services holding company, with operations in 160 countries and jurisdictions around the world. Its operations are incorporated within Citicorp, consisting of Regional Consumer Banking and Institutional Clients Groups. It holds $1.9tn in assets as on March 31, 2011. Citi’s assets housed in Citi Holdings are expected to be divested post its restructuring efforts.
Ongoing market recovery and normalization of credit offtake provide a positive macro environment for Citi in coming quarters. Significant investments being undertaken by Citi in its consumer Banking and Transaction services platforms are expected to begin to bear fruit by FY2012. Its investment in Emerging Markets currently is outpacing revenue growth, resulting in negative operating margins. The investments are expected to moderate by 2013, and having provided scale and scope, expected to drive significant revenue growth. Citi has also benefitted form the fall of Bear and Lehman, demonstrating strong performance in Rates and Fx trading. Citi Holdings’ assets are expected to decline by 44% by 2013, boosting its BIS2 capital ratios.
It is expected to face headwinds of increasing operating expenses and lower returns on capital in the coming quarter. In 1Q11, Citigroup’s litigation reserves remain unchanged from previous levels of $4 bn. It remains difficult to predict the reserve’s direction, as Citigroup is involved in a number of lawsuits.
Westport (WPRT) is a leading provider of technology that enables engines to run on alternative fuels such as natural gas, LNG, biogas or hydrogen. Based in Vancouver, BC, the company sells to a diverse group of more than 50 commercial vehicle OEMs in 19 countries.
Westport is now beginning to focus on the greater opportunities lying with the lighter vehicles instead of concentrating only on the heavy-duty ones. Its Emer acquisition has been, in part, due to the above mentioned change in focus. It has also announced a project with General Motors (GM) to develop natural gas engines for light-duty vehicles. This agreement opens up a very large opportunity for Westport as GM sold over 200,000 vehicles to commercial fleets in 2010. GM’s movement also reflects the increasing trend in the market toward using the abundantly available natural gas as an alternative to diesel. Also, with the finalization of Weichai Westport JV, the company now has a strong avenue to develop the Chinese market, which can provide it a significant avenue for growth of all categories of vehicles. The company is currently in the early stages of development, focusing on building and expanding OEM relationships and developing its technology, and thus, offering an attractive entry point.
Emdeon Inc (EM), based in Nashville, Tennessee, and founded in 1996, provides revenue and payment cycle management solutions that connect payers, providers, and patients in the US healthcare system. The company’s products and services are provided to payer customers on a per transaction or a per document basis, and to provider customers on a per transaction, per document or a monthly flat fee basis. The company went public in August 2009.
Emdeon’s main business of providing revenue and payment cycle management solutions to healthcare payers and providers has been weak since 1H2010. The current trend of customers integrating directly to payers and/or providers is an increasing risk to EM’s business. Its long-term growth potential can be hampered with the Health Reforms (like Section 1104 of the Affordable Care Act) that direct implementation of standardized and simplified operating rules to govern the exchange of health data transactions. This may significantly reduce the current demand of health clearing house services. At the positive end, EM acquired MultiPlan’s EquiClaim unit for $41mn in May to strengthen its retrospective payment review capabilities, increase EM’s footprints in the government space and create additional cross sell opportunities. According to consensus estimates, EPS is expected to be $1.02 in current year and $1.14 in Dec12.
Wells Fargo & Company (WFC), is one of the largest banking institutions in the United States with total assets of approximately $1.2 trillion. Through its subsidiaries, it provides retail, commercial, and corporate banking services. The company operates in three segments: Community Banking; Wholesale Banking; and Wealth, Brokerage, and Retirement. Its headquarters is in San Francisco, California, and it operates more than 10,000 branches.
WFC has been gaining market share since its integration with Wachovia. Majority of gains have been customers looking at moving from small and community banks to the safety of large-cap banks like WFC. Its overall checking accounts have grown by 6% in 1Q11. WFC’s current elevated expense levels are expected to decrease, specifically those related to the Wachovia integration. The company’s Mortgage modification strategy is yielding healthy results for the bank. It focuses on reducing monthly payments, which provides cash flow relief to customers. This is done by lowering the interest rate to very low levels and gradually increasing it later, allowing WFC to gain a higher coupon rate after the initial low rate. WFC also launched Project Compass about a year ago, in response to anticipated regulatory changes, business mix shift, and tough top line environment. The project is about gaining efficiencies via productivity increases and technology rather than via decreasing on client-facing personnel or across the board cost cutting.
WFC is currently maintaining a higher focus on the non-banking segments like asset management, brokerage and insurance distribution. According to consensus estimates, it carries a price target of $36.17