Analyzing Soros Fund Management's Top 7 Buys

by: The Analyst Hub

Soros Fund Management LLC is one of the most successful and high-profile hedge funds managed by billionaire hedge fund manager George Soros. Soros returned an average of 30.5% per year between 1969 and 2000. More recently in 2007, 2008, and 2009, his fund generated a 32%, 8% and 29% return respectively for investors.

The following is a list of top seven stocks Soros Fund Management LLC has bought last quarter.



Shares Held - 06/30/2011

Shares Held - 09/30/2011

Change in shares Inc.





Motorola Solutions Inc.





Medicines Co.





Interoil Corporation





Biogen Idec Inc.





Sandisk Corp.





Kraft Foods Inc.





Click to enlarge

Source: 13F Filing

My favourite long candidate among the above stocks is Kraft Foods (KFT). Kraft is the largest U.S. food manufacturer and second largest in the world behind Nestle (OTCPK:NSRGY). I am bullish on Kraft because of its international growth potential and value creation from the planned spin off.

Kraft is seeing significant growth in international markets and in the third quarter, developing markets contributed ~66% of incremental y/y segment profits and international contributed 86%. In the near future, I expect it will continue to enable Kraft to derive faster-than-average peer growth. It will also improve Kraft’s debt ratio, enabling it to return more cash to its shareholders in the future.

Another major catalyst for Kraft’s stock is its planned split into two companies. Kraft’s business consists of its high growth Snacks business and the stable return Grocery business. Kraft is planning to split up these two businesses in FY12. This will unlock significant value by highlighting an above peer growth profile of the global snacks business, driving operational improvements, and by allowing each company to pursue different capital allocation priorities.

Kraft is trading at 14x FY12 EPS, which is over 12% discount to its average 10-year historical PE multiple of 16x. I believe this is a good opportunity to initiate a long position in the company.

One stock which I don’t like in the above list is Amazon (NASDAQ:AMZN). Amazon is the world’s #1 online retailer. According to sell side consensus, Amazon’s EPS estimates for the next year is $2.05. At a current price of $202, Amazon is trading at a PE of ~100x. I understand the growth story, but investing in such a high PE in the current uncertain environment means taking disproportionate risks. Hence, I recommend avoiding this one.

I am also not too bullish on Motorola Solutions, Inc. (NYSE:MSI) from a near term perspective. Motorola Solutions, Inc. provides mission-critical communication products and services for enterprise and government customers worldwide. The Company’s portfolio includes products such as two-way radios, barcode scanners, radio frequency identification readers, mobile computing devices, wireless broadband networks and wireless local area network products. In the near term I am concerned about the potential impact of government spending cuts, as Motorola generates about 65% of its sales in its Government segment and the federal government represents 8% of revenues. Also, most of its enterprise sales are in the retail, transportation and logistics industries. Any downturn in retail sales due to macroeconomic concerns could lead to reduced purchases of Motorola barcode readers and mobile computing products.

The Medicines Company (NASDAQ:MDCO) is a global pharmaceutical company focused on advancing the treatment of critical care patients through the delivery of medicines to the global hospital marketplace. The Company provides medical solutions to improve health outcomes for patients in acute and intensive care hospitals worldwide. These solutions consist of medicines for critically ill patients. It has two marketed products: Angiomax (bivalirudin) and Cleviprex (clevidipine butyrate) injectable emulsion. MDCO is a high risk - high reward company because of the price volatility and patent risk associated with the litigations involving patent 727 and 343 with APP pharmaceuticals, Hospira (HSP), Mylan Pharmaceuticals (MYL), and Dr. Reddy (RDY).

InterOil Corporation (NYSE:IOC) is an integrated energy company operating in Papua New Guinea and its surrounding Southwest Pacific region. The Company operates in four business segments: upstream, midstream, downstream and corporate. The upstream segment explores for and appraises natural gas and oil structures in Papua New Guinea with a view to commercializing discoveries. The midstream segment produces refined petroleum products at Napa Napa in Port Moresby, Papua New Guinea for the domestic market and for export. The downstream segment markets and distributes refined petroleum products domestically in Papua New Guinea on a wholesale and retail basis.

On September 30, InterOil announced that it is seeking proposals for an operating and equity partner in the LNG project, concurrent with a selldown of a stake in the Elk/Antelope resource base. This can be a big catalyst for the company as it will help the market understand the true NAV of the company. Usually, gas resource transactions in Asia-Pacific have been done at $2.00/Mcf plus valuations, while IOC shares are currently pricing in just $0.40/Mcf. Given this disparity between intrinsic value and what the market is pricing in, I am bullish on the stock.

Biogen Idec Inc. (NASDAQ:BIIB) is a global biotechnology company focused on discovering, developing, manufacturing and marketing products for the treatment of neurological disorders and other serious diseases. The Company’s products include AVONEX, TYSABRI, FUMADERM and RITUXAN. Biogen is one of the best earnings reacceleration stories among big biotech. Continued strength in its core multiple sclerosis franchise, strong Avonex sales and several upcoming catalysts (dexpramiprexole in ALS, hemophilia A/B, and PEG-Avonex) make me bullish on the company.

SanDisk Corporation (SNDK) is engaged in designing, developing and manufacturing data storage solutions in a range of form factors using the flash memory, controller and firmware technologies. The Company operates a flash memory storage products segment. Most of its products are manufactured by combining NAND flash memory with a controller chip. The Company’s solutions include removable cards, embedded products, universal serial bus drives, digital media players, wafers and components. Sandisk's stock price has gained 45% in past 3 months and is now near its 52 week high. I don't think it's a good time to invest in the stock given the macro related risks. Furthermore, the recent departure of the company's CTO Yoram Cedar, who was well perceived within the investor community, is a negative for the company.

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