George Soros is best known for the success of his Quantum Fund, which has the best performance record of any investment fund since its inception. He believes that investment opportunities are found by studying value and market prices of assets and that financial markets are "chaotic" reacting to the emotional reactions of the traders and investors who buy and sell assets. We looked at some of his latest stock purchases and assessed their chances of success:
Adecoagro S.A. (AGRO): Adecoagro S.A. operates in South America, where it owns a total of 283,000 hectares of land: farms in Argentina, Brazil and Uruguay. It produces a variety of foodstuffs, including wheat, corn, coffee beans and milk.
Shares are trading at $11.31 at the time of writing, down 0.04% on the day and in the middle of their 52-week trading range of $10.09 to $13.91. At the current market price, the company is capitalized at $1.36 billion. Earnings per share for the last fiscal year were negative at -$0.14,
These earnings are expected to rise dramatically over the next couple of years, hitting $0.29 this year and then falling slightly to $0.25 the following year. Hopes are that this will allow the company to start paying dividends. Revenue during this time is forecast to increase to around $635.45million.
When compared to its sector, its gross margin of 27.92% is a little better than the average of 24.72%. Its main rival, Archer Daniels Midland Company (ADM), trades on a PE ratio of 9.38, on earnings per share of $3.25. Its dividend of $0.64 gives a current dividend yield of 2.10%. However, earnings per share at Archer Daniels is expected to remain fairly static over the next two years, rising only to $3.35 in the year ending 2012.
By buying Adecoagro, Soros is making a play on the increasing need for basic foodstuffs and investing in a company that is expected to have strong earnings growth in the next 24 months. This looks a good buy if you're bullish on agriculture long term.
Citigroup Inc (C): Citigroup is a banking giant headquartered in New York. It operates through Citicorp, which operates as a global bank for businesses and consumers and Citi Holdings which concentrates on retail and institutional brokering.
Shares are trading at $38.44 at the time of writing, up 0.26% on the day and toward the low end of their 52-week trading range of $36.30 to $51.50. At the current market price, the company is capitalized at $112.57billion. Earnings per share for the last fiscal year were $3.06, placing the shares on a PE ratio of 12.57. It paid a token dividend of $0.04 last year (a yield of 0.10%).
Its earnings are expected to grow rapidly through the next couple of years as the financial crisis continues to work its way out of the system and are estimated to hit $4.09 this year and then rising to $5.19 the following year. Rewards to shareholders through rising dividends should follow. Revenue during this time is forecast to increase to around $85.49billion.
When compared to its sector, its operating margin of 19.80% is above that of Bank of America (BAC) at 0.27%, but well below the industry average of 35.28%. However, its earnings per share are well placed when compared to its peers and these are set to increase at a far faster pace than those of the similar JP Morgan (JPM).
Citigroup is a solid business that should benefit from the receding effects of the financial crisis as they are worked through. With good management in place, Soros seems to have made a good purchase banking on continued recovery in the banking sector.
Amazon Inc. (AMZN): Amazon operates as an online retailer. It also manufactures and sells the Kindle ebook and offer services for this and traditional books through its subsidiaries.
Shares are trading at $218.96 at the time of writing, down 1.60% on the day but toward the top end of their 52-week trading range of $114.51 to $227.45. At the current market price, the company is capitalized at $99.39billion. Earnings per share for the last fiscal year were $2.27, placing the shares on a PE ratio of 96.59. It has so far paid no dividends during its lifetime.
These earnings are expected to dip this year as its Kindle product beds in, but then return to growth in year-end 2012 to $3.33. Revenue during this time is forecast to increase from this year's $48.48billion to around $64.06billion.
When compared to its sector, its current operating margin of 22.45% compares poorly to the average of 35.67% and its PE ratio is the highest of its peers, where the average is 24.61. Though its operating margin should improve toward the industry average as costs of marketing associated with the release of the Kindle work themselves out, this figure is still likely to remain well below that of its main competitor, Ebay (EBAY) which makes a margin of 71,69%.
Amazon’s growth prospects are good, so are Ebay’s. If Soros has made this purchase as a play on the direction of the publishing and book sales industry, then he has bought an industry leader. If he has bought as an investment in the online auction and sales market, then a better buy may have been Ebay, which has a less demanding PE ratio.
Moody’s Corporation (MCO): Shares are trading at $35.14 at the time of writing, down 0.47% on the day and in the middle of their 52-week trading range of $20.72 to $41.93. At the current market price, the company is capitalized at $8.04billion. Earnings per share for the last fiscal year were $2.65, placing the shares on a PE ratio of 13.27. It paid a dividend of $0.56 last year (a yield of 1.60%) which was covered 4.73 times by its earnings.
These earnings are expected to remain steady over the next couple of years, The dividend looks more than secure and the company has room to move this upwards to reward loyal shareholders. Similarly to its earnings, revenue is expected to remain constant at between $2.30 and $2.46 billion.
Its main competitor is Dun and Bradstreet Corporation (DNB), which has an operating margin of 25.12% compared to Moody’s 40.10%. The two companies have similar PE ratios (Dun and Bradstreet’s is 14.11).
With a greater need for risk and credit rating services around the world, partly as a result of the financial crisis and heavier regulation, Soros has invested in a business that should prove defensive against any economic downturn. A good buy in a steady business that rewards with a good dividend policy.
Google Inc. (GOOG): The search giant still gets the lion's share of its revenues from search and through Adsense and Adwords, the auction-based advertising program. In addition, it offers open source operating systems such as Google Chrome.
Shares are trading at $601.56 at the time of writing, down 0.35% on the day and toward the top end of their 52-week trading range of $447.65 to $642.96. At the current market price, the company is capitalized at $194.24billion. Earnings per share for the last fiscal year were a whopping $27.72, placing the shares on a PE ratio of 21.7. It pays no dividends.
Its earnings are expected to continue to rise with analysts penciling in forecasts of $41.94 per share in 2012, on increasing revenues to $32.26billion.
Its main competitor, of course, is Yahoo Inc. (YHOO), but number wise the two hardly compare. Yahoo’s operating margin is 15.16%: Google’s is 33.62%. Earnings per share at Google are $27.72: Yahoo’s is $0.89. Its figures like these that put Google on a higher PE rating of 21.7 compared to Yahoo’s 14.75.
Google is one of those rare companies that have made their name a household one and also created a new verb (how often do you say, “I’ll google that”?). With the internet here to stay and on line business levels set to increase, this is a good buy in a company that retains the value of its profit by its policy of not paying dividends.
Priceline.com Inc. (PCLN): Priceline.com is an online travel company that provides various vacation-related air and hotel reservations. Shares are trading at $532.05 at the time of writing, down 5.6% on the day and off the peak of their 52-week trading range of $220 to $561.88. At the current market price, the company is capitalized at $26.41billion. Earnings per share for the last fiscal year were $11.33, placing the shares on a PE ratio of 46.95. It paid no dividend.
These earnings are expected explode as travel bookings through the internet continue to grow. This year’s earnings look set to hit $20.29 and next year’s will reach $25.72 according to analysts' forecasts. Revenue during this time is forecast to increase to around $5.17 billion, from this year’s $4.22 billion.
When compared to its sector, its operating margin of 25.82% compares very favourably to the average of 9.51%. With such growth forecasts, its PE ratio is on the very high side, as against the sector average of 13.90. Its main rival, Expedia Inc. (EXPE), trades at a PE ratio of 16.25, on earnings per share of $1.46. Expedia pays a dividend, with the current yield at 0.90% (dividend $0.28 per share). Expedia’s earnings per share are also set to increase, but to a more modest $2.11 over the same period discussed.
An investment in Priceline.com is an act of faith in the continuing propensity of travelers to increase their holiday bookings and the ratio of added products, online. With people seeking to find bargains from the comfort of their own home, this strategy is likely to pay off, even if the PE ratio looks very demanding.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.