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George Soros is well known for the unmatched success of his Quantum Fund, which has the best performance record of any investment fund in the world over its 26 year history. During that time a cumulative annual return of 32% was achieved. Soros is currently quite bearish on the US Stock Market, although some of his behavior is contradictory to that view. This article will review five recent stock purchases by Soros in an attempt to uncover stocks that over the short to medium will allow you to unlock value in your portfolio and maximize returns over the long term.

Ciena Corporation (CIEN)

Ciena Corporation has a market cap of $1.20 billion and does not currently have a price to earnings ratio, as it is operating at a net loss. Its 52 week trading range is $9.89 to $29.24, and its last trading price was $12.39. It reported second quarter earnings 2011 of $435.31 million, an increase from first quarter earnings of $417.89 million. Second quarter net income was -$31.45 million, an increase from first quarter net income of -$62.69 million. It has a return on equity of -197.39% and does not pay a dividend.

One of Ciena´s closest competitors is Alcatel-Lucent (ALU). Alcatel-Lucent last traded at $3.09 and has a market cap of $7.00 billion. It has a price to earnings ratio of 14.11, quarterly revenue growth of 2.40% and a return on equity of 12.50%. Like Ciena, it does not pay a dividend. Based on these key performance indicators, Alcatel-Lucent is outperforming Ciena.

George Soros holds 1,100 shares of Ciena, selling 8,500 shares in second quarter 2011. He has gradually sold down his entire holding since third quarter 2010, even though he did purchase 9,600 shares in first quarter 2011. The shares were sold in the second quarter 2011, at an average price of $24.16 per share, crystallizing a loss of 3.71%. However, based on the last trading price of $12.39, had Soros maintained his positioned he would now have a paper loss of -50.62%.

Ciena’s second quarter 2011 balance sheet showed cash of $486.33 million, a decrease from first quarter cash of $506.84 million. In the second quarter 2011 it had net tangible assets of -$321.27 million, a decrease from the first quarters -$320.07 million.

Ciena’s quarterly revenue growth of 2.40%, versus an industry average of 12.80%, and a return on equity of 12.50%, versus an industry average of 10.0%, indicates that it is underperforming many of its peers.

As an optical-networking company, Ciena is facing increasing margin squeeze due to concerted cost cutting measures being implemented by many of its key clients as a result of the current economic uncertainty.

Accordingly, I do not believe that Ciena has strong future growth prospects and when combined with the decrease in balance sheet cash, the negative net tangible assets and the current net loss, I agree with Soros’ decision to sell his holding in the company. Accordingly, I rate Ciena as a sell.

Click Software Technologies Limited (CKSW)

Click Software Technologies has a market cap of $292.68 million, with a price to earnings ratio of 35.11. For a 52 week period its trading range has been $5.88 to $10.94, and its last trading price was $9.48. It reported second quarter earnings for 2011 as $6.82 million, an increase from first quarter earnings of $5.46 million. Second quarter net income was $428,000, an increase from first quarter net income of $183,000. The company has quarterly revenue growth of 17.50%, a return on equity of 17.60% and pays a dividend with a yield of 0.90%.

One of Click´s closest competitors is Viryanet Limited (OTCQB:VRYAF). Viryanet last traded at $0.63 and has a market cap of $2.26 million. It has a price to earnings ratio of 6.49, quarterly revenue growth of -8.50% and doesn’t generate a return on equity as it is currently operating at a net loss. Viryanet doesn’t pay a dividend. Based on these key performance indicators Click is out performing Viryanet.

Soros holds 1,378,666 shares of Click, purchasing 85,299 shares in the second quarter 2011, adding to an existing holding of 1,293,367 shares. The average purchase price per share is $7.18. Based upon the last trade price of $9.48, Soros has made a return of 32.03%.

Click’s cash position has improved, its second-quarter 2011 balance sheet showed $4.20 million in cash, an increase from $3.40 million in the first quarter. Its quarterly revenue growth rate of 17.50% is marginally lower than the industry average of 21.90%, and its return on equity of 17.60%, is greater than the industry average of 6.3%. This indicates a well managed company performing ahead of many of its peers.

Based on the increase in cash on the balance sheet, combined with solid key performance indicators, I agree with Soros´ decision to purchase additional stock. The only consideration is that the stock price has been steadily rising since the start of September 2011, and it is difficult to predict when profit takers will step into the market and push the price down, however, when they do this will create a buying opportunity. Based on these factors, I rate Click as a buy.

Bluefly Inc (BFLY)

Bluefly has a market cap of $54.64 million and currently does not have a price to earnings ratio as it is operating at a net loss. Its 52 week trading range has been $1.46 to $3.50, with a last trading price of $2.22. It reported second quarter 2011 earnings of $24.04 million, an increase from first quarter earnings of $21.69 million. Second quarter net income was -$1.03 million, an increase from first quarter net income of -$1.28 million. Bluefly has quarterly revenue growth of 17.00%, a return on equity of -14.76%, and doesn’t pay a dividend.

One of Buefly’s closest competitors is eBay Inc (EBAY). eBay last traded at $33.69 and has a market cap of $43.42 billion. It has a price to earnings ratio of 25.31, quarterly revenue growth of 24.60% and a return on equity of 11.52%. eBay doesn’t pay a dividend. Based on current performance indicators, eBay is outperforming Bluefly.

Soros holds 5,924,515 shares of Bluefly, which were bought in fourth quarter 2009 at an average price of $2.19 per share. Since then there has been no change in this holding. Based on the last trading price of $2.22, a return of 1.37% has been made.

Bluefly’s cash position has improved, the second-quarter balance sheet showed $3.53 million in cash, a substantial decrease from $7.83 million for the first quarter. Bluefly’s quarterly revenue growth rate of 17.00%, is marginally higher than the industry average of 15.90%, and its return on equity of –14.76%, is substantially less than the industry average of 12.70%. This indicates that the company is underperforming many of its peers.

The current earnings growth outlook for specialty retailers, such as Bluefly, who operate in the high end designer segment, is particularly poor. This is due to the poor economic outlook for the US economy and ongoing high unemployment. Moody's Analytics in August 2011 lowered their outlook for growth in the U.S. economy for 2011 and 2012, saying “they see significantly weaker prospects for the economy, as the country struggles to avoid another recession.” Moody's expects real gross domestic product to grow at an annualized rate near 2% in the second half of 2011, and a little more than 3% in 2012. In addition in a recent economic whitepaper, Goldman Sachs forecast the unemployment rate to remain above 7%, until at least 2013.

Due to Bluefly’s poor performance indicators and the uncertain earnings potential for retailers, I agree with Soros’ decision not to purchase additional stock. However, I do not agree with his decision to maintain his current holding. I believe there are better investment opportunities in the market sector and rate Bluefly as a sell.

General Motors Company (GM)

General Motors Company has a market cap of $37.73 billion with a price to earnings ratio of 5.09. Its 52 week trading range has been $19.05 to $39.48, and its last trading price was $24.16. The company reported second-quarter revenue of $39.37 billion, an increase from Q1 of $36.19 billion. Second quarter net income was $2.24 billion, a decrease from first quarter earnings of $3.15 billion. The company is achieving quarterly revenue growth of 18.70%, a return on equity of 27.82%, and does not pay a dividend.

One of General Motors’ closest competitors is Ford Motor Company (F). Ford last traded at $11.56, has a market cap of $43.93 billion, with a price to earnings ratio of 6.66. It has quarterly revenue growth of 1.30%, a return on equity of 755.33% and does not pay a dividend. Based on these performance indicators General Motors is outperforming Ford.

Soros holds 642,500 shares of General Motors, with 518,800 shares purchased in second quarter 2011, adding to an existing holding of 123,700 shares. The total share holding was purchased at an average price per share of $30.70. Based on the last trade price of $24.16, this is a return of -21.30%.

General Motor’s cash position has decreased, its second quarter balance sheet showed $20.47 billion in cash, a decrease from first quarter cash of $20.98 billion. With quarterly revenue growth of 18.70%, versus an industry average of 7.70%, and a return on equity of 27.82%, versus an industry average of 7.90%, General Motors is performing substantially better than many of its peers.

When combined with a weak dollar, that should make U.S. exports more competitive, and a stronger-than-expected manufacturing sector, there is an opportunity for increased earnings growth for US based manufactures such as General Motors.

However, some caution must be exercised, as the earnings potential of companies generating revenue from the consumer goods sector remains poor in the short term, due to a poor economic outlook and high unemployment. A recent Goldman Sachs Economic Whitepaper predicts US second quarter 2011 growth to be 1% and forecasts the unemployment rate to remain above 7% until at least 2013.

While General Motors has experienced a substantial drop in net earnings, its gross revenue for the second quarter has increased. When combined with a strong quarterly revenue growth rate and an impressive return on equity, I agree with Soros’ decision to purchase the stock. Accordingly, I rate General Motors as a buy.

International Business Machines (IBM)

International Business Machines has a market cap of $227.55 billion, with a price to earnings ratio of 15.47. For a 52 week period its trading range has been $136.70 to $10.53, and its last trading price was $190.53. The company reported second quarter 2011 earnings of $26.67 billion, an increase from first quarter earnings of $24.61 billion. Second quarter net income was $3.67 billion, a substantial increase from first quarter net income of $2.86 billion. It has quarterly revenue growth of 12.40%, a return on equity of 69.26% and pays a dividend with a yield of 1.60%.

One of International Business Machine’s closest competitors is Microsoft Corporation (MSFT). Microsoft last traded at $27.27 and has a market cap of $228.48 billion. It has a price to earnings ratio of 10.14, a quarterly revenue growth rate of 8.30% and a return on equity of 44.84%. It pays a dividend with a yield of 2.90%. Based on these performance indicators, Microsoft is performing strongly but it is being outperformed by International Business Machines.

Soros purchased 150,400 shares of International Business Machine in the second quarter 2011, at an average price of $167.02 per share. Based on the last trade price of $190.53, he has made a return of 14.08%.

International Business Machine’s cash position has decreased in the second quarter 2011, its balance sheet showed $11.71 billion in cash, a substantial decrease increase from first quarter cash of $12.76 billion. This decrease can be partly attributed to increased general expenses.

Some caution must be exercised, as the earnings potential outlook for companies generating revenue in the US remains poor in the short term, due to a weak economy and high unemployment. The US Federal Reserve recently decided to keep interest rates extremely low for two more years, saying “it expected the economy to remain weak for that period.” However, International Business Machines has a built a strong international franchise and has diversified its operations across a number of countries, providing technology services to large corporate clients.

International Business Machines has quarterly revenue growth of 12.40%, versus the industry average of 8.10%, and a return on equity of 69.26%, versus the industry average 36.40%. This indicates it is well managed company that is outperforming many of its peers. On this basis, even when taking into account the poor economic outlook and decline in cash, I agree with Soros’ decision to purchase the stock. I rate International Business Machines as a Buy.

Source: George Soros's Newest Portfolio Picks