The following are some of the top low PE stock legendary hedge fund manager George Soros is holding, according to Soros Fund Management's latest 13F filing.
Wells Fargo & Company (WFC): My Take - Buy
Soros Fund Management holds 1,200,000 shares of Wells Fargo. Wells Fargo is trading at a forward PE of 9.39. I believe Wells Fargo provides one of the best risk adjusted return potential among the large cap banking stocks. Wells Fargo is one of the well-capitalized banks with a strong balance sheet. Thanks to its balance sheet strength, it is more immune to any near term slowdown or eurozone shock than its large cap banking peers like Citigroup (C) and Bank of America (BAC). On the other hand, it is likely to see a good upside as the broader economy recovers in the long-term. It also has a good potential to gain market share from relatively weaker banks. At a current valuation of less than 10x forward PE, it appears to be a very good investment for investors with low risk appetite who are looking to build a position in financial services sector.
KeyCorp (KEY): My Take - Buy
Soros Fund Management holds 1,890,700 shares of KeyCorp. KeyCorp is trading at a forward PE of 10.67. KeyCorp operates as a holding company for KeyBank National Association that provides various banking services in the United States. It is based out of Cleveland, Ohio with branch network primarily in the Pac-NW, Mid-West and NE. The company's lending portfolio focuses primarily on C&I (33%), home equity (20%) and commercial mortgage (19%).
KeyCorp reported a good 4Q 2011 results beat driven by lower loan loss provisioning and higher fee income. More positives include strong Commercial and Industrial loan growth, NIM expansion and better than expected interest income. With its Tier 1 Capital Ratio at 11.28%, return of capital in the near term seems likely.
Looking ahead, management guided for a modest NIM improvement in 2012 driven by asset mix shift towards loans and continued cost improvement. While earnings potential in the near term is limited, the major catalyst for the price will be return of capital plan to the shareholders which is linked to the recent CCAR outcome. KeyCorp is in a good position going into Comprehensive Capital Analysis and Review and an increase in dividend and share repurchases are highly likely. Further it is one of the cheapest in its group, currently trading at a huge discount to its peers which makes me bullish on the stock.
Delta Airlines Inc. (DAL): My Take - Buy
Soros Fund Management holds 1,769,000 shares of Delta Airlines. Delta is trading at a forward PE of 3.60. Delta Air Lines is the largest U.S. airline, operating hubs in Atlanta, Cincinnati, Detroit, Memphis, and Salt Lake with a sizable presence in Los Angeles and New York City. Internationally, Delta is the largest transatlantic carrier and has also established a large Latin America presence this decade.
Delta's previous quarter was the most profitable December quarter in its history as most of its financial metrics exceeded the consensus estimates with a strong passenger unit revenue growth (PRASM) in December (13% y-y). Operating margins were at the high end of the guidance as stronger demand contributed to its earnings upside.
Delta's 1Q 2012 guidance suggests strong outlook as revenue trends are expected to remain robust with January's PRASM growth coming in at 15%. Delta's PRASM gains are expected to outpace the industry in 2012 as it gains market share in large corporate accounts due to cost convergence and fare unbundling. Demand driven fears have pulled down Delta's EV/EBITDA multiple during the last couple of quarters. I believe the current valuation levels are attractive and recommend a buy.
YPF SA (YPF): My Take - Buy
Soros Fund Management holds 860,255 shares of YPF SA. YPF is trading at a forward PE of 6.38. YPF's business fundamentals are going in the right direction with improvements in price of crude and refined products. However, it is facing a great deal of political uncertainty at national/provincial government levels. There is a risk that YPF may lose some of the concessions it enjoys and it may also have to reduce dividend and increase investments in production and exploration. However, at current valuation of 6.38x forward earnings, the stock is too attractive to ignore. I believe most of the risks are already priced in at these levels and any favorable settlement can lead to significant upside in the next 12 months.
DISH Network Corp. (DISH): My Take - Avoid
Soros Fund Management holds 1,103,910 shares of DISH Network. DISH is trading at a forward PE of 10.87. DISH Network Corp. is the second largest satellite operator in the US. It has approximately 13.9 million subscribers. On Jan. 1, 2008, the company spun off its set-top box and commercial satellite businesses, now known as EchoStar Corp. DISH also purchased the video rental chain, Blockbuster, out of bankruptcy in April 2011.
DISH is a "controlled" company with its CEO Ergen owning 53.6% equity stake and 90.6% voting power. Historically it has not been a shareholder friendly company and the risk of surprises has always been high. DISH's core operations in the last couple of years have proven volatile on both subscriber and margin fronts. Going forward, DISH's unclear strategy with Blockbuster asset, as DISH closes more than 500 stores and unclear capital allocation plan is expected to weigh on its multiple. I expect it to underperform relative to its cable peers which are increasingly focused on returning capital to the shareholders.
One thing to watch out closely for DISH is its progress in Wireless business. DISH wants to be in the competitive wireless business and is currently pending approval for the S-Band spectrum transfer from DBSD, and TerreStar and terrestrial-only waiver from Federal Communications Commission. While this new business provides a considerable upside if approved, a wide range of outcomes are possible including a delay which could weigh negatively on DISH.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
