Are These 3 Recent Soros Buys Bargains?

Includes: AI, RCL, SA
by: Investment Underground

By Ann McQueen

Hedge fund guru George Soros, who founded Soros Fund Management to advise the Quantum Group of Funds, recently purchased these three stocks. In the time since he bought them, their share prices have dropped at least 20 percent. These are unconventional picks because of their exposure to various macroeconomic risks. All of these stocks are also trading under $30. In this article I analyze the company metrics to see if they may offer investors a bargain relative to their peers.

Royal Caribbean Cruises Ltd. Co. (NYSE:RCL) – This international cruise ship operator is currently trading near $27 a share. It has shown some price volatility over the past 52 weeks, ranging from $18.70 to $49.99. It reached its highs for the year in January and February but dropped sharply in late July and early August. It reached its low on Oct. 3.

Earnings per share is $2.88, and the price-to-earnings ratio is 9.50. This compares with the industry averages of 0.13 and 18.35, respectively, so it appears to be trading at a bargain. Its debt-to-equity ratio seems a little high at 1.04 but beats the industry average of 1.9.

RCL paid a $0.10 dividend in August. It was the first dividend the company has paid in three years. Its dividend yield is 0.40 percent, and its payout ratio is 3 percent. Its market capitalization is $5.95 billion.

Third quarter results were strong. Net income was up to $399 million year over year from $350.2 million. Demand was particularly strong for Caribbean and Alaska cruises. The company recently announced that three of its most modern ships will be ported on the Gulf Coast over the winter, offering vacationers several options for Caribbean getaways. Net cruise costs, excluding fuel, increased 2.5 percent. Company officials expect demand for next year, which is already solid, to hold despite lingering uncertain economic conditions.

Its competitor Carnival Corp. (NYSE:CCL) is currently trading near $33 a share. Its 52-week range is $28.52 to $48.14. CCL has also trended downward over the year, with recent prices showing somewhat of a rebound from annual lows reached in August and again in October. Earnings per share is $2.45, and price-to-earnings ratio is a little higher at 13.67. Total debt-to-equity ratio is 0.40. CCL pays a nice dividend. Its yield is 3 percent or $1, and its payout ratio is 44 percent. Market capitalization is $26.17 billion.

RCL is trading at a very attractive price that is much more of a bargain than its competitor. Though it is not the largest cruise operator, its brands are recognized and respected. Though income is subject to larger economic conditions, RCL is positioned for long-term growth and offers buy-and-hold investors a very nice opportunity at a value.

Arlington Asset Investment Corp. (NYSE:AI) – This investment company that acquires U.S. agency-issued residential mortgaged-backed securities is currently trading near $22 a share. It has ranged from $21.05 to $32.63 over the past 52 weeks, reaching its highs in late June and its lows in August, again in October, and again at the first of the month.

Earnings per share is $2.10, and price-to-earnings ratio is 10.62. Average earnings per share for the industry was not available, but the average price-to-earnings ratio is 11.85. Debt to equity is very high at 3.95.

AI’s dividend yield is very high at 15.70 percent or $3.50. Its payout ratio is 146 percent. Market capitalization is $170.21 million.

Core operating income for the third quarter ended Sept. 30 totaled $8.7 million. AI reported a net loss of $11.6 million compared with net income of $5.2 million for the same period last year. At the beginning of the month, company officials issued a press release stating that AI had no financial exposures to MF Global Holdings Ltd. or any of its affiliates.

Its competitor Evercore Partners (NYSE:EVR) is currently trading near $28 a share. It has ranged from $19.96 to $37.26 over the past 52 weeks. Its price dropped dramatically at the end of July and began regaining some of its value in late October. Earnings per share is $0.39, and price-to-earnings ratio is very high at 72. Debt to equity was not available.

Its dividend yield is 2.50 percent or $0.72 a share. Its payout ratio is 171 percent. The company's market capitalization is $743 million.

Analyst recommendations of AI trend toward “Strong Buy.” The company appears to have all the ingredients of a promising up and coming small-cap investment company, and investors with high tolerance to risk may find it an opportunity for substantial growth. I tend to be more conservative, however, and I have concerns about its high debt to equity and payout ratios. Soros has a better track record than I, though, so investors should take my opinion with a grain of salt.

Seabridge Gold Inc. (NYSEMKT:SA) – This small-cap Canadian gold exploration company is currently trading near $23 a share. It has ranged from $19.84 to $36.22 over the past 52 weeks. It reached its lows in early October.

SA is showing a loss per share of $0.18, and price-to-earnings ratio is not available. It does not pay a dividend. Market capitalization is $968.39 million.

SA’s third quarter results show a net loss of $3.71 million, which compares with a loss of $717,000 for the same quarter 2010. Company officials noted that the loss includes more than $3 million of stock option compensation that is being expensed while it vests. Quarterly investments in its assets, primarily KSM and Courageous Lake, totaled $18.29 million. This compares with $19.87 million for the same quarter last year. Net working capital of $38.9 million was up year over year from $32.05 million.

Some industry experts point out that SA’s experience lies in exploration, not in operating and running mines to produce gold. With gold prices ranging near historic highs, this approach makes no financial sense. In fact, its reserves are located in rugged, mountainous, and frozen areas that require very large capital expenditures to develop.

Its competitor NovaGold Resources Inc. (NYSEMKT:NG) is currently trading near $9 a share. It has ranged from $5.93 to $16.90 over the past 52 weeks. It reached its annual low in early October. NG is also showing a loss per share of $0.58. It does not pay a dividend. The market capitalization is $2.10 billion.

NG reported a net loss of $56.5 million for the third quarter 2011. This compares with a net loss of $147.6 million for the same period last year. Expenses for the quarter were also higher year over year.

It is hard to get an idea of a junior mining stock’s value based on these metrics. Both companies boast owning North American properties known for their mineral content. Furthermore, estimates of the value of the gold that’s in the ground are very attractive. Junior miners are highly speculative, though, and only investors with high risk tolerance should consider them. That said, I would like to know more about capital expenditures estimated for the actual production of SA’s resources as well as some details related to regulatory risks associated with mining in some of the areas in which its properties are located before suggesting risk-averse investors consider this stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.