We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire George Soros. We use the information in 13Fs as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) but it’s also possible to screen picks from top investors such as Soros according to a number of criteria. The PEG ratio serves as one way to measure a stock’s upside potential; this metric includes the P/E multiple and analyst forecasts for future earnings growth (which admittedly aren’t always accurate, so investors should do more research on any interesting stocks rather than take these projections at face value). Read on for our thoughts on Soros’s five largest holdings as of the end of March in stocks with five-year PEG ratios less than 1 (or see the full list of stocks Soros reported owning).
Soros reported a position of over 9 million shares in Delta Air Lines, Inc. (NYSE:DAL). Airlines are notoriously bad investments, but some value investors argue that US Airways Group, Inc. (NYSE:LCC)’s merger with American will lead to industry consolidation and therefore allow higher prices. Analyst expectations for 2014 imply that Delta Air Lines, Inc. (NYSE:DAL)’s forward P/E is 6, with the stock’s PEG ratio being well below 1. We’d be interested in doing more research on the airlines as value plays. Billionaire David Tepper’s Appaloosa Management has been another major shareholder in Delta and other airlines (check out Tepper’s stock picks).
Soros dumped most of his shares of American International Group Inc (NYSE:AIG) but maintained a stake of 2.9 million shares in the bailed-out insurer. With many other filers in our database selling American International Group Inc (NYSE:AIG) last quarter, the stock slipped to third in our list of the most popular stocks among hedge funds (see the full top ten list). The stock’s five-year PEG ratio is 0.9, suggesting that analysts see some upside potential in the company. In addition, American International Group Inc (NYSE:AIG) remains priced at a discount to the book value of its equity with a P/B ratio of 0.7. We think that the stock should trade a bit below book, but this discount could certainly narrow further.
Acacia Research Corporation (NASDAQ:ACTG) is a $1.2 billion market cap company which maintains a portfolio of intellectual property assets; the 13F showed Soros with 3.6 million shares at the end of the first quarter of 2013. The sell-side is projecting $2.98 in earnings per share for 2014, which makes for a forward P/E of only 8, and the five-year PEG ratio is considerably less than 1. The stock is down over 30% in the last year, however, as both revenue and earnings have been down sharply. While this may be due to unusual business conditions, we’d still be cautious here.
The billionaire reduced his stake in Motorola Solutions Inc (NYSE:MSI) to 1.7 million shares by the end of March. Motorola Solutions Inc (NYSE:MSI)’s five-year PEG ratio is 0.9, as analysts expect moderate growth in the company’s earnings over the next several years while the current valuation represents a trailing P/E in the teens. Earnings were up over 20% last quarter compared to the first quarter of 2012, though revenue was about flat. Tiger Global Management, one of the Tiger Cub hedge funds, was buying Motorola Solutions and reported 2.9 million shares in its own 13F (research more stocks Tiger Global was buying).
Disclosure: I own no shares of any stocks mentioned in this article.
