Billionaire George Soros has filed his 13F for the first quarter of 2013, disclosing many of his long equity holdings as of the end of March to the SEC and consequently to the general public. Even though the information in these filings is a bit old by the time it is released, we think that there are still a couple ways it can be useful. First, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and we imagine that other strategies are possible as well. Second, reviewing the moves that top managers have made can at least serve as a source of initial investment ideas for further research. Read on for three things we noticed when analyzing Soros’s most recent 13F compared to what he has previously reported owning (see Soros’s last several 13F filings).
Selling finance & insurance. At the beginning of 2013, the two largest stock positions by market value in Soros’s portfolio were Citigroup Inc (NYSE:C) and American International Group Inc (NYSE:AIG). The investor then slashed both stakes between January and March; his American International Group Inc (NYSE:AIG) position decreased in size by about two-thirds and he reported owning only about 540,000 shares of Citi (down from 8.1 million shares three months earlier). We’d note that none of his top ten picks according to the 13F were from the finance & insurance sector. AIG had briefly grabbed the title of most popular stock among hedge funds during the fourth quarter of 2012, but last quarter Apple Inc. (NASDAQ:AAPL) regained the #1 slot (read more about hedge funds’ favorite stocks). AIG currently trades at a significant discount to the book value of its equity, at a P/B ratio of 0.7. Citi is also seeing skepticism from the market in terms of the value of its assets, and it’s P/B happens to be 0.7 as well. This is the case even though Citi has nearly doubled in price over the last year. The bank’s forward earnings multiple of 10 is in line with that of its peers, though other large banks have generally been doing better over the last several quarters in terms of their net income.
US Airways. The filing showed Soros roughly doubling his holdings of US Airways Group Inc (NYSE:LCC) to a total of 7.8 million shares. US Airways Group Inc (NYSE:LCC) is in the process of buying American Airlines out of bankruptcy, which will allow greater industry consolidation and potentially higher prices (particularly, in the minds of analysts, on routes where the combined US Airways-American will have a high market share). In addition, the traditional poor performance of airlines has left many of these stocks candidates for value status; US Airways, for example, is valued at 6 times its trailing earnings. The billionaire trimmed his stake in Delta Air Lines, Inc. (NYSE:DAL) during the quarter, but due to the rise in that stock’s price Soros’s top ten picks now include both airlines.
We think that the airline industry is worth taking a look at- even with its notoriety for bankruptcy, stocks are cheap enough that we don’t think they should be ignored (though in the particular case of US Airways we’d be somewhat concerned with integration risk). We’re more uncertain about Google Inc (NASDAQ:GOOG): we like the business, but a good deal of future growth is already priced into the stock and so it might be fairly valued already. Citi and AIG, Soros’s sales, are cheap in book terms though many of Citi’s peers are also potential value plays and investors who are looking at it should consider other megabanks as well.
Disclosure: I own no shares of any stocks mentioned in this article.
