By Elizabeth Jia
Investment Underground took a look at a few promising picks that George Soros' funds are buying. Here are our noteworthy favorites to keep an eye on that may impact your portfolio:
General Motors (GM): When coming from such lows, mega highs are needed to get back up. EPS estimates for this year are thus, understandably hyperbolic: 574%! (For some leveled perspective, GM is looking at a much more reasonable five-year EPS projection of 24%.) We’ll see this week if we’re on track. The leader of the U.S. car market, with 19% of it in its pocket, GM has fought a very rocky battle over the past few years. With new leadership that has an eye on a clean debt book, a condensed and somewhat diversified product portfolio and healthy North American operations it looks like GM, dependent on consumer behavior of course, might be able to take off its boxing gloves for a bit, or at least get itself out of the corner and land some punches of its own.
Petroleo Brasileiro (PBR): This massive Brazilian producer has been boosted recently by the major discovery of reserves off the Brazilian coast. This type of extraction is more costly than traditional extraction, so, as prices for oil rise, the justification and margin son this type of extraction grows. Libyan instability leads to spike in oil prices which leads to increased value of PetroBras’s reserves. That said, this type of extraction is also known for its long-term nature. That means that investors are aware that the benefits of the reserves will be elongated over a period of time so momentary shakes to the oil market can have less of an effect on the stock. This is a double-edged sword.
United Continental (UAL): United overpaid for Continental Airlines, and the company will face a tough job continuing to integrate the airline over the next few years. Competitors, both established and new, as well as significant fuel price increases will hamper this company. UAL can grow revenues with higher ticket prices and we expect mid margin expansion due to synergies developing, albeit at half the $1 billion figure offered by management. We value shares at $23 apiece using a 12% discount rate. Events in Japan are not helping the company, though operators like Delta (DAL) are bearing the brunt of reduced air traffic to and from the island.
Motorola, Inc (MSI): In January the mobile telecommunications and technology giant had broken up into Motorola Solutions and Motorola Mobility. IU’s information is dedicated to Motorola Solutions (MSI), a company with 51,000 employees. Its market cap stands at 14.02B with a return on assets at 2.54%. The revenue is 19.28B. Its trailing annual dividend yield is 3.78. We recently highlighted that Dodge & Cox funds have a significant ownership stake in the company.
ArcelorMittal (MT): has a market cap of $53 billion. It trades under a P/E of 20.66, and with a PEG of 0.80, but with a dividend yield of 1.8%. In 2010, MT made $78 billion in revenues, which is an increase of 19.84%. Net income is up to $2.9 billion. This is a jump of 2371%. EPS also went from $0.08 to $1.72. The ROE is 4.72% and ROA is 2.26%.
The EBIT and profit margins are 2.38% and 8.9%, respectively. The current ratio is 1.39 with a D/E of 0.31. 52 week trading range is $26.28 - $47.25. The 30 day put/call ratio is 0.8.
Walmart (WMT): While present in Japan, it is far from its most crucial market and in the words of a Moody’s analyst, it won’t a have material impact on the company’s operations. Currently trading at $51.52/share, it hasn’t deviated by more than 2% from this price in the past 20 days. Its forward P/E of 10.6 lends itself to the view that it should climb higher to reach fair value in the $60/share range.
Citigroup (C) has shown four straight quarters of profit, after being squarely embroiled in the financial meltdown of 2008. In sum, the company made $10.6 billion in profits in 2010. The company also grew revenues by 7.87% in 2010, and 52.08% in 2009. The EBT margin in 2010 improved to 15.22%. In its heyday, Citigroup traded with P/S multiples in the 3’s. Now, it is 1.5, and the industry average is 1.3. EPS came in at $0.35 in 2010, recovering from -$0.80 in 2009. Analysts expect 2011 to produce an EPS between $0.32 and $0.55. Shares trade under $5. This is a long-term play.
Delta Airlines (DAL): Delta should be able to grow revenues at a 7% clip and keep margins around 6%. Fuel prices will hamper any real growth for the company, however. Periodic battles for market share with other established and newer players in the industry will keep a lid on Delta. We value shares at $10 apiece using a 12% discount rate. Delta recently announced that its revenue losses due to the crisis in Japan would amount to $400 million, a significant chunk for the company.
Ford (F): Ford is trading at a very low $14-15 per share, well below fair value of $23 per share, on a discounted cash flow basis. EPS for 2011 are forecast at 113% with a five-year projection of nearly 13%. Broad trends suggest that it is stealthily improving its position in the competitive landscape: a consolidation of brands, a gain in market share over the past year and the shedding of debt. On this last point, it was just announced that Ford will redeem, in cash, all 6.50% convertible trust preferred securities, effectively taking off $3 billion in debt from its books and reducing total debt to $16 billion. As earnings announcements loom, these dual events could act as a catalyst to bring its stock price nearer to fair value. We use an 11% discount rate for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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