Billionaire George Soros' Q1 Stock Picks

Includes: CMVT, GS, HSH, JPM
by: Insider Monkey

By Guan Wang

Soros Fund Management, an investment management firm founded by legendary investor George Soros, has a stunning track record. He returned 30.5% annually on the average between 1969 and 2000. He even managed to return 8% in 2008, a horrible year for the whole finance industry. The 81-year-old man retired last year, handing back about $1 billion of his $25.5 billion fund to outside investors. The firm now focuses on managing money for Soros and his family. It recently revealed its holdings as of March 31, 2012, in a 13F filing.

Over the first quarter of 2012, the major positions in the Soros Fund Management portfolio have not changed much, but there was a new addition in its top 10 positions - Sara Lee Corp (SLE). It was the second-largest equity position in Soros' 13F portfolio at the end of March. Soros significantly boosted his stakes in this position by over 42,000% during the first quarter. As of March 31, 2012, Soros reported to own about $160 million worth of Sara Lee shares. Some other hedge fund managers also like Sara Lee. There were 29 hedge funds reporting to own this stock at the end of last year. Lee Ainslie's Maverick Capital had over $200 million invested in this position (check out Lee Ainslie's top stock picks) at the end of 2011, while Dan Loeb's Third Point had about $150 million invested in Sara Lee.

For the 13 weeks ending March 31, 2012, Sara Lee reported total revenues of $1.899 billion, up 2.1% from $1.86 billion for the same period last year. Its revenue growth is significantly slower than the industry average of 24.8%. The company also reported making $0.20 per share, versus $0.22 per share for the same period a year earlier. Over the past year, Sara Lee experienced declining EPS. Its EPS over the past year was $0.51, versus $0.84 in the prior year. But, the negative trend is expected to reverse in the year ahead. Sara Lee is expected to earn $0.92 per share in 2012 and $1.05 per share in 2013. However, its 2013 P/E ratio of 20 is still above the industry average of 16.

The good news is that Sara Lee is planning to spin off its beverage business to its shareholders in mid-2012, which will unlock some of its value and enable the company to better focus on its packaged meat business. The company also has a decent dividend yield of 2.17% and has been repurchasing its outstanding shares to boost its EPS. It bought back $500 million worth of its shares in FY 2010 and $1.3 billion in FY 2011.

During the first quarter, Soros also increased his bets on Comverse Technology Inc (NASDAQ:CMVT). He boosted his position in the company by 10%, to $111 million, making the stock the fifth largest equity position in Soros' portfolio at the end of March. Comverse is also quite popular amongst the other hedge funds we track. Twenty-seven hedge funds had Comverse in their 13F portfolios at the end of December 2011, up from only 2 hedge funds at the end of September. Besides Soros, Barry Rosenstein and Steven Cohen also bought new Comverse stakes over the fourth quarter last year (check out Steven Cohen's top stock picks).

For the three months ending January 30, 2012, Comverse reported a drop in revenues and profits. Over that period, the company generated revenues of $405.46 million, down from $430.84 million for the same period in the prior year. Its quarterly net income also declined to $4.48 million, or $0.02 per share, from $15.43 million, or $0.07 per share. Though Comverse's earnings are declining on a quarter-over-quarter basis, its net income has improved on a year-over-year basis in the past few years. In FY 2011, the company reported net loss of $58.7 million, compared with $132.3 million for FY 2010 and $272.0 million for FY 2009. Analysts expect Comverse to generate positive earnings in the next couple of years. Its EPS is expected to be $0.36 in 2012 and $0.42 in 2013, and its earnings are expected to grow at an average of 23.5% per year over the next few years. Its forward P/E ratio of 15 is lower than the average of 18 of its peers, indicating that the company is relatively undervalued.

Soros also boosted his stakes in a few large-cap financial stocks in the first quarter, including JPMorgan Chase & Co (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS). Investors might question these trades as JPMorgan recently suffered from a $2 billion trading loss, but we are still favorable about JPMorgan as we believe it is one of the best capitalized banks (check out our previous article about JPMorgan's trading loss). Similarly, we also like Goldman as a leader in the investment banking industry with its strong global client relationships.

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