"I'm not nearly so concerned about the return on my capital as I am the return of my capital." Will Rogers (American Humorist and Celebrity, 1879-1935)
We'd all like to look over the shoulders of the Warren Buffett's and the John Paulson's of the world and see what companies they're about to invest in. That's because we don't want to loose our "capital", but make it grow.
Although knowing what billionaires are about to purchase is nearly impossible, we can track what they've recently invested in and what they are "likely" to invest in the near future. That's what I do on a daily basis, and more times than not I've learned that what the "Big Dogs" buy usually does quite well, given enough time.
For instance, recently billionaire John Paulson, founder of hedge fund Paulson & Co., added shares to all but two of his gold holdings in the fourth quarter, this according to a Forbes story on Monday, Feb.27th.
His fund bought more Barrick Gold (ABX) and Randgold Resources (GOLD) in the fourth quarter of 2011. Since then these two stocks have had nice run-ups in price, as this chart clearly shows. It also demonstrates that GOLD has outperformed ABX by a large margin.
As the Forbes article stated,
Most recently, in the year ended Dec. 31, 2011, Anglogold Ashanti produced record adjusted earnings of $1.3 billion, up 65 percent from 2010, and increased its dividend 141 percent to 49 cents. Its reserves also grew 6 percent and resources grew 5 percent.
It used its strong free cash flows to cut its debt in half, to $610 million. Production for the year declined four percent, in line with November guidance.
Paulson still owns 34,290,702 shares of the company after selling several million over the last three quarters. It is still one of his largest holdings, comprising 10.5 percent of his portfolio.
Perhaps we should be considering it too, especially since it's selling at less than 9 times this coming year's earnings, pays a 2.4% dividend, and has one of the lowest 5-year expected PEG ratios of any major stock at 0.16.
George Soros also added to his portfolio at the end of 2011, and the list is quite telling. Of great interest to me is that he really beefed up his position in Google (GOOG). Perhaps he foresaw Google's Android would become the most popular smartphone software among consumers, and in a Bloomberg story we can see their popularity is expanding.
Soros' fund also owns over 14.7 million shares of Comverse Technology (CMVT) which was purchased at an average price of $6.69-per-share. Monday it was selling at around $6.59, barely 11 times forward earnings. CMVT provides software-based products, systems, and related services that offer prepaid, postpaid, and converged billing and active customer management for wireless, wireline, and cable network operators.
Its products also enable wireless and wireline network-based value-added services, such as voicemail, call completion, visual voicemail, short messaging service, multimedia picture and video messaging, mobile Internet access, and Internet Protocol communications.
The company also provides actionable intelligence solutions in order to capture, distill, and analyze complex and underused information sources, such as voice, video, and unstructured text. CMVT has a 5-year expected PEG ratio of 0.74, which also puts it in the "strong buy" category from a valuation standpoint.
Is Jim Cramer a Billionaire? Buy His Energy Picks Anyway
Cramer might not have a billion dollars, but he represents a media empire that does. He also is "well-connected" (to say the least) to the multi-billionaire dollar hedge fund industry. These are the "movers and shakers" that determine everything from sector rotation to market consolidations.
Speaking of sector rotation, the sector in-play at the present moment appears to be the energy sector. Perhaps that's why Cramer highlighted on his Monday Mad Money show the energy stocks he favors now.
It was no surprise that the energy company he likes the most and feels is the "most conservative" investment right now is ConocoPhillips (COP) which still sells for less than 9 times forward earnings and pays a respectable 3.5% dividend.
Cramer mentioned that in the first week of March there will be an "analysts day" that should be good for COP. He claims the company has an effective share-buyback program going on, and that around the first of May they will spin-off some of their divisions, thus creating more shareholder value for those who own the stock.
He also mentioned Schlumberger (SLB), which represents compelling value to him. With the stock currently selling at 14 times next year's earnings estimates, Cramer thinks SLB is a "steal" at current levels. He may be correct, and he chose 3 other companies to promote to round out that portion of his show, which you can learn about here.
If SLB is a "steal", then you and I may want to look at Ensco Plc (ESV) the owner of the second-largest off-shore drilling fleet, whose revenues are set to double in 2012 thanks to the earnings of some of its rigs.
ESV sells at less than 9 times forward earnings and has an amazing 5-year expected PEG of 0.59...and if that doesn't speak of a stock/company that's a "steal" I don't know what does. No wonder insiders hold over 317,000 shares and Wellington Management company alone owns over $1 billion worth of ESV shares (almost 10% of the outstanding shares).
If you're thinking and investing like a Billionaire, you'll want to wait and accumulate these shares after some of the existing shareholders do some profit-taking.
To minimize risk and not tie up as much of your investing capital, consider using some "leverage" by doing a longer-term bull-call-spread using LEAP options. I like to buy a call that goes out at least 9 months and is "in-the-money" while selling a call of a similar duration with a strike price that corresponds to a price I'd want to sell the Leap option calls that I'm long in.
There are still plenty of companies and strategies worth considering even after the market's recent advance. Invest like a Billionaire by choosing profitable companies in sectors that are currently in favor at prices that make uncommonly good sense. May lucrative results surely follow your careful decisions!
Additional disclosure: My article also mentions Comverse Technology (symbol CMVT). Over the next 72 hours I may initiate bull call spreads on AU,ESV, and CMVT.