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Virgin Media Inc. (VMED), US Airways Group, Inc. (LCC): Billionaire George Soros’ First-Quarter Moves

Published on May 28, 2013 at 7:48 am by The Motley Fool in Hedge Funds
SOROS FUND MANAGEMENTBillionaire George Soros managed to return an average 30.5% per year between 1969 and 2000. Soros is best known for his Quantum Fund, which has one of the best performance records of any investment fund in the world over its 26-year history. Having invested a mere $1,000 in 1969 when Soros established the Quantum Fund would have been worth $4 million by the year 2000. Soros was shaking up his hedge fund last quarter; let’s check out his top moves (check out Soros’s recent moves).
Merger-arb
Soros appears to be making a merger-arbitrage play by greatly upping his stake in Liberty Global Inc. (NASDAQ:LBTYA) and Virgin Media Inc. (NASDAQ:VMED) . Soros increased his shares owned by over 3,000% in Liberty and over 950% in Virgin.
Liberty offers customers a three-pronged service, including video, broadband, and telephone. Its triple-play customer base jumped some 15.8% year-over-year in 2012.  Earlier this year, Liberty announced that it would acquire Virgin Media Inc. (NASDAQ:VMED). The deal is expected to be on an enterprise value of nearly $23.3 billion. The deal would put Liberty as a foremost competitor to BSkyB, which is the largest pay-TV operator of the U.K.

Virgin plans on doubling its revenue from the business segment within the next five years, using its cloud-computing services. Virgin Media Inc. (NASDAQ:VMED) also offers customers a service called TV Anywhere, which means that customers can view live TV shows using their mobile devices.

Even still, Virgin trades at a 20.5 times P/E and only 17.1 times forward earnings, both discounts to the industry averages. I think the long-term prospects for Virgin Media Inc. (NASDAQ:VMED) are encouraging and believe a Liberty-Virgin merger will make for a powerhouse in the industry. Virgin Media is also one of billionaire Dan Loeb’s top picks as of 1Q (check out Loeb’s top stocks).

Flying high
One of Soros small-cap picks was US Airways Group, Inc. (NYSE:LCC) . After a 98% increase in shares owned during the first quarter, US Airways now makes up Soros’ eighth-largest holding. Revenue for the airline company was up 6% in 2012 and should be up another 5% in 2013. US Airways Group, Inc. (NYSE:LCC) is also performing well of late, managing to post EPS of $0.31 compared to the $0.13 loss in the same quarter last year.

What’s more is that the industry should see a rise in fares as capacity cuts over the past three years begin to impact pricing. Decelerating costs will also be another tailwind for US Airways Group, Inc. (NYSE:LCC), where jet fuel costs spiked 28% in 2011 but only grew 3% in 2012; and another 3% rise is expected in 2013. However, the other big news drawing hedge funds to this stock is the merger with AMR’s American Airlines. This will help US Airways garner a solid international network.

Big tech

Google Inc (NASDAQ:GOOG) is now Soros’ second-largest holding after a 78% increase in shares owned during the first quarter. One of the most dangerous competitors to Google appears to be Facebook Inc (NASDAQ:FB), which is becoming a formidable competitor in the online-advertising market.

Google Inc (NASDAQ:GOOG) gets the majority of revenue from the sale of advertising space. A big part of this is that the company has a dominant position in desktop search. Now the tech giant is looking to secure its position in the mobile segment with its Android OS. Google trades at 26 times earnings, which is actually well below its peers, and below the mid-point of its historical P/E range of 16.7 times to 41.2 times.

At the end of the first quarter, there were a total of 148 hedge funds long the stock. Billionaire Steve Mandel of Lone Pine Capital had the largest position in Google Inc (NASDAQ:GOOG), worth close to $1.1 billion and accounting for 5.8% of its total 13F portfolio (check out Mandel’s top picks).
Overvalued retail
Soros’ fund dumped 34% of its Wal-Mart Stores, Inc. (NYSE:WMT) shares owned during the first quarter.  Although it is the world’s largest retailer, the company remains exposed to the broader economy. When you operate some 8,500 stores in 15 countries, under 55 different names, it can be tough to find new ways to grow. Thus, much of Wal-Mart Stores, Inc. (NYSE:WMT)‘s investment thesis comes down to valuation.
Wal-Mart Stores, Inc. (NYSE:WMT) is trading with a P/E of around 10.5 times, which is a 9% premium to the industry average of 9.6 times. Also, Wal-Mart’s P/B multiple is 3.2 times, a 66% premium to the industry average. What’s more  is that the company is expected to continue to see headwinds from competitive pressures related to e-commerce.
Don’t be fooled
Billionaire George Soros appears to be investing in the merger-arb game of late, with buys that include Liberty, Virgin Media Inc. (NASDAQ:VMED) and US Airways Group, Inc. (NYSE:LCC). I think the resulting company that will be Liberty Global Inc. (NASDAQ:LBTYA) (after the Virgin acquisition) will be a long-term buy given the company’s market positioning and complementary services.
However, although US Airways has some tailwinds, the joining together of American Airlines and US Airways Group, Inc. (NYSE:LCC) is another long-term positive for both companies. I think Google is also a buy given its dominant position in the search market, while Wal-Mart Stores, Inc. (NYSE:WMT) appears to be appropriately valued, so wait for a pull back.

The article Billionaire George Soros’ First-Quarter Moves originally appeared on Fool.com.

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

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