George Soros is a hedge fund titan, with his successful Quantum Fund averaging a 30.5% annual return between 1969 and 2000. He is known as "The Man Who Broke the Bank of England" when he made $1 billion during the 1992 Black Wednesday UK currency crisis. His investment philosophy states that financial markets are chaotic, with traders often acting out of emotional reactions rather than rational calculations. His theory of reflexivity asserts that the biases of individuals enter into market transactions, potentially changing the perception of the fundamentals in the economy. This results in disequilibrium and overshooting or undershooting of the markets. He is also well known for his conviction in his beliefs, willing to commit large amounts of capital when he feels confident that he is right. In the recent quarters, Soros has had high conviction in a number of stocks, having added aggressively to his positions in Polo Ralph Lauren (RL), Thermo Fisher Scientific (TMO), Microstrategy Inc. (MSTR) and Seagate Technology (STX).
Polo Ralph Lauren Corp. (RL)
Soros has been actively buying Ralph Lauren in the past couple of quarters as the stock shot upwards in price. In the third quarter of 2010, Ralph Lauren was traded at an average price of $81.20, but it gained more than 25% by next quarter to an average price of $103.50. Soros had a tiny position in Ralph Lauren of only 5,300 shares, but he increased it dramatically by adding 491,068 shares in the first quarter of 2011 when the stock increased again to an average price of $117.15. He doubled on his position in the second quarter, adding an additional 498,244 shares at an average price of $127.29. He now owns 994,612 total shares of Ralph Lauren, representing 1.85% of his equity portfolio.
Polo Ralph Lauren Corp. is in the design, marketing and distribution of premium lifestyle products. The company's brand names, which include Polo, Polo by Ralph Lauren, Ralph Lauren Purple Label, Polo Sport, Ralph Lauren, RALPH, Lauren, Polo Jeans Co., RL, Chaps and Club Monaco, among others, constitute one of the world's most widely recognized families of consumer brands.
Polo Ralph Lauren reported fiscal first quarter revenues of $1.5 billion for the period ended July 2, up 32% over last year's $1.2 billion. The growth in net revenues reflected strong growth in both wholesale and retail, with wholesales segment sales up 29% to $673 million and retail segment sales up 37% to $814 million. Comparable store sales increased 19%, and RalphLauren.com expanded sales by 28% in the quarter. In addition, wholesale sales were supported by double-digit shipment growth, and licensing revenues increased 6% due to increased product licensing royalties. Overall, net income for the quarter increased to $184 million and EPS up to $1.90, up 52% from last year's net income of $121 million and up 57% from last year's EPS of $1.21.
The company ended the quarter with 371 directly operated stores and 535 concession shop locations, up from having added 4 stores and 25 concession shop locations since last quarter. Its inventory was up 42% from last year to $896 million in anticipation for sales growth, including newly transitioned Asian operations. It also purchased 2.5 million shares of its Class A Common stock during the quarter for $302 million. The company has maintained its strong balance sheet, with debt-to-equity at .095.
Polo Ralph Lauren has been riding a recent trend of luxury retailers beating projections, having been more insulated from the macroeconomic environment as upper-class spending hasn't taken as large a hit as middle-class spending. Polo has also built a larger presence in Asia, seeing sales rising by more than 40% in the region, its fastest-growing geographic segment. It currently has a market cap of $13.9 billion. The stock trades with a P/E ratio of 20.5, above its recent five-year average. Its P/S ratio is 2.0, and its P/B ratio is 3.7, both of which are slightly above their five-year averages. GuruFocus has awarded Polo Ralph Lauren a five-star predictability rating.
Thermo Fisher Scientific, Inc. (TMO)
Soros has held a position in Thermo Fisher since 2009, when he bought 10,430 shares of the company for an average price of $37.57. He then increased his position by 325,000 over the next three quarters as the stock rose in price to $48.80 before nearly selling out in second quarter 2010 at an average price of $52.45. He immediately repurchased his position the next quarter when prices dipped to $46.50. In the first quarter of 2011, Soros added 141,000 shares of Thermo Fisher at an average price of $55.90. In the most recent quarter, Soros doubled on his position, purchasing an additional 482,100 shares at an average price of $60.88. He currently holds 937,100 total shares of Thermo Fisher, making up 0.85% of his equity portfolio.
Thermo Fisher Scientific Inc. provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacture, analysis, discovery, and diagnostics. Its Analytical Technologies segment offers analytical instruments for measuring, analyzing and monitoring data as well as provides diagnostics products for healthcare labs. Its Laboratory Products and services segment offers laboratory equipment, laboratory consumables, research market solutions and healthcare market products.
According to its second quarter report, Thermo Fisher reported record quarterly revenue of $2.90 billion, up 12% over last year. In its Analytical Technologies Segment, revenues increased to $1.28 billion, up 19% over last year's $1.07 billion as a result of the company's acquisitions, favorable currency, and 6% organic growth. In its Laboratory Products and Services Segment, revenues increased to $1.76 billion, up 6% over last year's $1.65 billion as a result of acquisitions, favorable currency, and 2% organic growth. Adjusted operating margin (excluding amortization costs) increased 40 basis points to 17.6%. Overall net income was $523.4 million, more than doubling last year's reported $237.3 million, though excluding discontinued operations and including amortization expenses, adjusted net income was $383.0 million, still up over last year's $338.3 million.
During the quarter, Thermo Fisher completed its acquisition of Dionex, enhancing the company's chromatography portfolio. The company also expanded its laboratory consumables with its acquisition of Sterilin and acquired TREK Diagnostic Systems to broaden its microbiology offerings. It also announced the acquisition of Phadia for $3.51 billion, a move expected to "enhance our specialty diagnostics capabilities with tests for allergies and autoimmune disorders," which it completed on August 23. It also spent $225 million in share repurchases during the quarter.
Thermo Fisher has a market cap of $21.4 billion. The stock trades with a P/E ratio of 14.7,below its five-year average. Its P/S ratio is 2.1, above its five-year average though quarterly sales per share are at a high of $7.56. Its P/B ratio is 1.4, roughly even with its five-year average, and book value per share is also at a high of $40.87. The company's balance sheet is respectable, although debt-to-equity jumped up from .118 last quarter to .256. However, return on equity is at its highest since 2005 at 13.4%. The company has also consistently generated positive free cash flow numbers, going back all the way to 2004. GuruFocus has awarded Thermo Fisher a business predictability rating of two-and-a-half stars.
MicroStrategy Inc. (MSTR)
MicroStrategy has climbed dramatically since falling to a five year quarterly low of $38.00 in fourth quarter 2008. In a single year, its stock more than doubled to $85.00. Soros initiated a small position in the company in the fourth quarter of 2010 after the stock slightly dipped down to $88.20, buying 23,322 shares. He dramatically increased his position in the next quarter, adding 315,062 shares when the average price climbed to $109.70. His most recent move was a small addition of 14,716 shares at an average price of $139.54, giving him a total of 353,100 shares in the company and making up 0.81% of his equity portfolio. The current price has decreased 20% from the second quarter average, hovering around $110 a share.
MicroStrategy Incorporated provides business intelligence (BI) software worldwide. It offers MicroStrategy 9, an integrated BI platform that enables businesses to make business decisions. he company also offers technical support, consulting, and education services; and operates Angel.com that provides interactive voice response telephony systems. MicroStrategy Incorporated serves retail, telecommunications, financial services, insurance, healthcare, manufacturing, technology, and government and public services sectors.
MicroStrategy reported second quarter revenues of $138.2 million, up 28% over last year's $107.5 million. This included a 16% increase in Product Licenses revenues to $33.4 million and a 32% increase in Product Support and Other Services revenues to $98.7 million. However, operating expenses increased 45% to $100.1 million due to increased employees and related expenses, particularly in engineering and sales personnel . As a result, net income for the quarter was $2.9 million, down from last year's $11.6 million.
During the quarter, MicroStrategy introduced new technologies in an attempt to "capitalize on the big data, mobile, cloud and social media trends." The company announced the availability of MicroStrategy 9.2.1, featuring increased mobile device and apps functionality. It also announced the availability of MicroStrategy Cloud, a cloud-based platform-as-a-service that enables "rapid, cost-effective development of business intelligence and mobile and social apps." Finally, it introduced a Gateway for Facebook, "a new cloud-based service that can interconnect enterprise IT environments and enterprise applications with the Facebook social graph."
The large increases in operational expenses are likely to remain if the company maintains its personnel in its efforts to chase the "big data, mobile, cloud and social media trends" mentioned in its earnings release. As a result, low operating margins may persist, as its operating margin of 2.5% was a steep decline from last year's 13.3%. Return-on-equity has also dipped in the past two quarters; after annual ROEs around 30%, it returned only 2.9% in the first quarter of 2011 and only 7.4% last quarter. The company does have a strong balance sheet though, carrying no long term debt. MicroStrategy has a market cap of $1.4 billion. The stock trades with a P/E ratio of 45.5, much higher than its five-year average. Its P/S ratio is 3.1, roughly even with its five-year average. Its P/B ratio is 8.8, slightly above its five-year average.
Seagate Technology (STX)
Soros entered his current position in Seagate when he bought 81,400 shares of the company in the fourth quarter of 2010 at an average price of $14.30. He more than sextupled his holdings the next quarter, purchasing an additional 464,957 shares for an average price of $13.82. In his most recent move, Soros again more than sextupled his holdings when he added 2,977,443 shares of the stock at an average price of $16.37. He currently holds 3,523,800 total shares of Seagate, representing 0.80% of his portfolio. However, the price of the stock has since decreased more than 30%.
Seagate Technology is the worldwide leader in the design, manufacturing, and marketing of hard disc drives, providing products for a wide-range of applications, including Enterprise, Desktop, Mobile Computing, Consumer Electronics and Branded Solutions. Seagate's business model leverages technology leadership and world-class manufacturing to deliver industry-leading innovation and quality to its global customers, and to be the low cost producer in all markets in which it participates.
According to Seagate's fourth quarter report for the period ended July 1, revenue was $2.86 billion, up 7.6% over last year's $2.66 billion. However, gross margin decreased from last year's 27.4% to 19.3%, and net income for the quarter was $119 million, down from last year's $379 million. According to Steve Luczo, Seagate's chariman, president, and CEO, "Seagate and the industry are benefitting from the significant demand for storage related to new applications and architectures associated with mobile and connected devices. For the June quarter, Seagate’s average capacity per drive shipped grew to approximately 590 GB, an increase of 39% year-over-year." Seagate also returned $77 million to shareholders by announcing its first dividend in nine quarters this past quarter at $0.18 per share.
For the fiscal year, the company reported revenue of $11.0 billion at a gross margin of 19.6%. This compares to last year's revenue of $11.4 billion at a gross margin of 28.1%. Net income was $511 million, down from last year's net income of $1.6 billion. In the company's earnings conference call, the company mentioned increased costs for rare earth elements as a reason for decreased gross margins. The company also decreased guidance to $0.29 to $0.33, much lower than analyst estimates of $0.44.
On 4/19/2011, Seagate Technology and Samsung Electronics Co. announced that they have entered into a definitive agreement under which the two companies will significantly expand and strengthen their strategic relationship. Major operational elements include Samsung combining its hard disk drive operations into Seagate, extending and enhancing the existing patent cross-licenses agreement between the companies, a NAND flash memory supply agreement under which Samsung will provide Seagate with its semiconductor products for use in Seagate's products, and a disk drive supply agreement under which Seagate will provide supply disks to Samsung for PCs and other consumer electronics. In addition, Samsung will receive significant equity ownership in Seagate and an executive of Samsung will be nominated to join Seagate's Board of Directors. Seagate will pay $1.375 billion, half in stock and half in cash, to Samsung.
According to the press release, the agreements "significantly expand Seagate’s customer access in China and Southeast Asia" and "enable Seagate to secure an important source of leading-edge NAND flash supply as the company expands its SSD and solid state hybrid product offerings, and position Seagate to be a more significant supplier of disk drives to Samsung."
Seagate has a market cap of $5.1 billion. Its stock currently trades with a P/E ratio of 10.6, slightly below its five-year average. Its P/S ratio is 0.5, also below its five-year average. Quarterly sales per share are at a historical high at $6.65 per share. Its P/B ratio is 2.3, again below its five-year average. However, Seagate's debt-to-equity ratio has been increasing over each of the past three quarters, now standing at a high 1.43.
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