Consider these latest big buys by Soros Fund Management

Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the fourth quarter, Soros Fund Management purchased 70 new stocks, increased its stake in 45, and sold 69 out.  Among the fund manager’s biggest buys are Citigroup (NYSE: C), Pioneer Natural Resources  (NYSE: PXD), JPMorgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS), and Citrix Systems(NASDAQ: CTXS). Here, I've looked into each of these big buys from a fundamental perspective. A quick glance into the investment decisions of fund management firms as huge and well-regarded as George Soros’ Soros Fund Management can give us insights on how best to pick out promising stocks to maximize gains.

Citigroup

The giant fund management firm increased its holding in Citigroup fivefold. The 435% increase has brought Citigroup on the top spot of its portfolio with a share of 3.84%.

Citigroup was not as impressive in the last quarter of 2012 as it was in the previous quarters, where it steadily exceeded earnings expectations in a positive way. In fact, the negative surprise in the latest quarter was of a larger magnitude of about 21% when compared to its single-digit positive earnings surprise rates.

Nevertheless, the stock price is advancing robustly. Citi's double-digit profit margin and a rebound in its quarterly revenue, from below the $20 billion mark in the third quarter of 2012 to $22.80 billion in the latest quarter, continues to attract investors, despite the disappointment in terms of earnings.

The stock may peak soon -- but maybe not too soon, with its P/E ratio set at 17.61 and a forward ratio of 8.45. For dividend income seekers, Citigroup continues to pay a dividend amount of $0.01 per share, giving it a very low payout ratio of 1.58%.

Pioneer Natural Resources
Soros bought 692,461 shares of Pioneer in the fourth quarter, or 49% of its previous position, bringing its total to 2,088,697 shares, which represented 2.66% of the fund’s total portfolio.

Pioneer has failed to meet earnings expectations in the last three consecutive quarters. If there is anything that entices me about this oil and gas company, it's the impressive 18.94% growth (year over year) in quarterly revenues. Recently, its net margin has stabilized at more than3%.  In terms of dividend payment, the payout ratio is at a low rate of only 7.46% while the quarterly amount remains at a steady value of $0.04 per share.

Recently, the Dallas-based company announced public offering of 9 million shares of common stock. The proceeds, which will amount to about $1.152 billion, will be used for general corporate purposes such as fast-tracking of its horizontal appraisal drilling in West Texas. In the meantime, the net proceeds will also be utilized to repay borrowings and invest in U.S. treasuries or money-market funds.

JPMorgan Chase

Soros almost tripled its holding in JPMorgan in the fourth quarter, when it bought 1,590,000 shares. The total stake was equivalent to 1.35% of the fund manager’s portfolio. JP Morgan is increasingly becoming more profitable.  The company performed well in the latest quarter, as its net margin reached 20.34%, the highest among the quarterly estimates in recent years (see chart below). With a continued positive growth in revenues, increases in earnings have resulted to figures that have surpassed the consensus estimates. In fact, JPM had posted positive earnings surprises in the last four consecutive quarter reports. 

<img src="/media/images/user_15403/jp-morgan-profit-margin_1_large.jpg" />

Source: Ycharts.com

Investors highly favor the financial holding company for its stable and increasing dividend payment. The payout remains at a manageable level of about 23% which indicates its ability to reinvest its earnings and produce a sustained stream of dividend income in the future.  The stock price is surging very rapidly, and people wonder just how much more space there is left. But based on its current valuation, a P/E ratio of 9.40, and high profitability, I wouldn’t be surprised to see an even more robust 2013 for JP Morgan. 

<img src="/media/images/user_15403/jp-morgan-dividend_1_large.jpg" />

Source: Nasdaq.com

Morgan Stanley

Morgan Stanley’s stock price has gained a robust growth since the time Soros decided to initiate a new position in the company amounting to 4,144,200 shares or roughly 0.95% of its total portfolio. The company has been exceeding consensus estimates in the last 2 consecutive quarters, the latest of which had an impressive surprise rate of 73%. Its quarterly revenue has rallied in the end of December by gaining 18.07% year-on-year growth. This is such an encouraging progress from a history of negative growth in the prior quarters. Dividend payment at MS also remains stable at $0.20 per share on an annual basis. Estimates show that in the next five years, earnings per share will grow by 16.30%. With a forward P/E at 9.43, it looks like MS will continue to attract onlookers. However, to sustain such energy, it has to maintain its robust revenue performance.

Meanwhile, the company is competing with Goldman Sachs and JPMorgan in handling the sale of the Russian government’s stake in the world’s biggest diamond miner in terms of output, OAO Alrosa. A positive outcome may further the company’s attractiveness as an investment.

Citrix Systems

Soros initiated a position worth over $62 million in Citrix Systems in the fourth quarter; the holding was equivalent to 0.74% of the manager’s total portfolio.

The stock price has gained a momentum since the last part of 2012. If you look at its fundamentals, Citrix is shining like a new penny. Its quarterly revenue growth (yoy) has been in the double digits since the first quarter of 2010. For instance, revenue growth was at 19.48% in the end of December 2012.

With this, coupled with a double-digit profit margin, you get only an outstanding growth performance. In fact, Citrix has surpassed earnings estimates four quarters in a row in 2012. Estimate of its forward P/E is placed at 20.40 based on compilation of Finviz.com. 

<img src="/media/images/user_15403/citrix_large.jpg" />

Judging by the robust trend in the price of each stock in this mix of big buys by Soros, I only have good words for this high-regarded firm. The list may be lacking in variation as it is mostly on financial stocks but who cares when the results have all been more than just reasonable?


aubrey1102 has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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