George Soros' Top Holdings: Buy Or Sell?

 |  Includes: AAPL, C, CRM, CVX, GS, JPM, RIG
by: FAF Research

George Soros is known for the unmatched success of his Quantum Fund. His basic theory of investing is that financial markets are chaotic. The prices of stocks, bonds and currencies depend on the human beings who buy and sell them, and those traders often act out of highly emotional reactions rather than coolly logical calculations. Opportunities can be found by carefully studying the value and the market prices of assets. He focuses on a theory of "reflexivity," which is based on the premise that individual investor biases affect market transactions and the economy.

I find it very interesting to analyze Soros' current picks via and review each stock selection.

Apple (NASDAQ:AAPL): My opinion -- Buy

Soros decreased his position 58% from last quarter in Apple.

I think that current macro weakness could lower wireless demand. I think that comes from some problems that affect the overall mobile consumer demand. The headwinds include macro weakness and austerity measures hitting an already weak European market; a cut in U.S. carrier marketing spend and upgrade incentives; and 28nm industry constraints which could limit demand at the high-end for 4G LTE smartphones. I think that created some selling in Apple in the recent weeks.

It is essential to understand that Apple has maintained its place as the world's most valuable brand over the past year, leading a group of technology-related companies that dominate the top 10, according to the annual BrandZ study by leading brands and market-research agency Millward Brown. This is a huge positive of AAPL in comparison to other tech stocks.

I think that Apple's valuation could keep increasing as the company extracts more profits out of the traditional PC and mobile phone industries. I expect major new product launch soon including new iMacs, MacBook Pros and MacBook Airs. From says these new products could include retina displays and new Ivy Bridge processors. I also believe that Apple may be planning to add another form factor to its iPad line in the 7" range for the fall, a product that could be useful in promoting Apple's agenda in education with e-textbooks.

The most important catalyst for the rest of 2012 will be a major iPhone 5 launch this fall. While Apple's outlook and global research points toward decelerating iPhone sales through September, I believe that shares will benefit in anticipation of major product cycles.

SalesForce (NYSE:CRM): My opinion -- Buy

Soros initiated a new position in SalesForce last quarter.

Recently, Oppenheimer upgraded CRM to Outperform from Perform and sets target price at $180 saying they believe the preferred model for deploying enterprise software continues to shift away from client-server architectures in favor of SaaS architectures. Customers can typically deploy SaaS solutions faster with less up-front investment. This leads to quicker ROIs and faster adoption rates, which resonates well in the current macro environment.

CRM recently announced solid Q1 2013 results, with revenue, bookings, and EPS all above Street expectations. I expect these results will be more than enough to ease recent pressure on shares of CRM

I think that Salesforce is the highest quality and largest scaled SaaS name , best leveraged to the rising strategic importance of SaaS and Enterprise Social trends. Given the magnitude of the bookings outperformance in the recent report coupled with upbeat commentary around the strength of pipeline and the numerous tailwinds they see ahead, I wouldn't be surprised to see a notable increase in valuation of CRM in the recent quarters.

It is important to understand that if Europe keeps dragging stocks down CRM will decline as well. However, once individual company fundamentals matter again, I am confident that CRM shares will quickly resume their upward trajectory. In the last earnings report, the market took it very positively that CRM raised its full-year revenue and EPS guidance.

JPMorgan Chase (NYSE:JPM): My opinion -- Sell

Soros initiated a new position in JPMorgan last quarter.

I like Sheila Bair's recent comments on CNBC regarding this name. She basically said that JPM is too big to manage or simply too complex to manage.

Stiefel also downgraded JPM to Hold from Buy saying the company now becomes somewhat un-analyzable. Stiefel analysts asks how does one go about assessing the risk contained within the company's significant derivatives book when they have no meaningful access to anything to analyze and the one thing that made them comfortable with the exposure was the sound risk management behind it (providing benefit of the doubt).

While JPMorgan's core business lines remain strong and intact, I worry about the potential risk the credit derivatives portfolio poses to earnings going forward. This could be a binary event where the company either gains or loses on this trading position and, until the company is able to unwind this portfolio, there is little clarity into and a lot of uncertainty surrounding JPMorgan's future earnings. While I expect the industry to come under pressure and Volcker implementation to be brought up again, this event is largely isolated to JPMorgan and its internal controls.

Transocean (NYSE:RIG): My opinion -- Buy

I think that considering the dividend cut in the rearview mirror, and a possible solution to the Macondo settlement, the equity will be considered more investable going forward. FBR explained this very well in a recent report mentioning that while it may take some time for Transocean to rein in operational expenses and work through BOP re-certification and maintenance issues, FBR analysts thinks that operational risk are already priced into the stock.

According to a recent Morgan Stanley report, rental rates for ultra-deep-water rigs, the world's most complex and expensive drilling vessels, should climb 28% to a record $714,000 a day by the third quarter from about $560,000 currently, according to estimates by Ole Slorer, an analyst who dubs the move a "super spike." Transocean, the world's biggest owner of offshore rigs, will have more units available for leasing than rivals through 2013. That positions the Swiss company better to supply vessels that can cost $600 million each to explorers from XOM to BP that are leading the search for crude miles below some of the world's deepest oceans.

Recently, Transocean Chief Executive Officer Steven Newman told investors March 26 at the Howard Weil Energy Conference that "our long-term outlook for ultra-deep-water is very, very robust. Demand can only grow as explorers must book rigs further into the future to get their wells drilled." The stock has led peers this year with a gain of 40%, cutting its loss since the April 20, 2010, oil spill at BP Plc's Macondo well to 42%. That's still the biggest decline of any offshore driller in the period.

I think that RIG is a very compelling turnaround opportunity.

Citigroup (NYSE:C): My opinion -- Sell

Soros initiated a new position in Citigroup last quarter.

I think that shares and earnings of money center banks will fall significantly over the balance of 2012 due to a confluence of material events, both at home and abroad, led by an increasingly troublesome situation in Europe. It is important to understand that a Greek exit of the euro is probable and I fear material damage in the eurozone will result, both directly and via contagion to other PIIGS countries.

I did not like that Citi's Q1 2012 earnings report was marked by a number of "special" items that distorted line-by-line comparisons. The ongoing businesses in Citicorp earned an ROE of about 15%, which obviously would deserve a much higher multiple than what the shares are currently being awarded. Citi received great criticism last year for "negative operating leverage" on "investment spending." I do not like Citigroup or money center bank's complexity in its balance sheets.

Other Stocks Soros Likes

Soros also initiated positions in both Goldman Sachs (NYSE:GS) and Chevron (NYSE:CVX). My opinion: GS is a Sell and CVX is a Hold.

Regarding Goldman, recently its management struck a cautious tone with respect to the current environment in an investor meeting the second week of May, noting low risk appetite and trading volumes caused by uncertainty and lack of conviction among corporate and institutional clients alike, as well as still-low levels of inventory. Goldman management thinks that the environment thus far in Q2 2012 bears an eerie resemblance to last year, with similar macro overhangs weighing on market participants. Similar to my position in JPM and C, I do not feel comfortable with big money center banks complexity in their business models.

Chevron is one of the largest integrated energy companies in the world and has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from any weakness in the global economy. I see the stock performing in line with the broader market weakness and volatility, so I prefer to stay on the sidelines.

Disclosure: I am long AAPL, CRM.