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George Soros Tells Investors to “Play It Safe,” Adds Four New Stocks

January 09, 2012 | About:
Holly LaFon

Holly LaFon

250 followers
In July last year, George Soros almost exited the market, taking his $25 billion Quantum Endowment Fund to 75% cash while they looked for “clarity on global events.” He also told prospective investors at the Indian School of Business last week “Play it safe.” He did add some new stocks recently, however. According to GuruFocus Real Time Picks: Interoil (IOC), Quantum Corp. (QTM), WebMD Health Corp. (WBMD) and Mercury Computer Systems (MRCY).

InterOil (IOC)

Soros increased his holding of InterOil by 1117% at about $51 per share. He now owns 5,032,622 shares. He has owned the stock since he bought 1,860,000 shares in the second quarter 2009 at about $32.75 per share. The stock more than doubled by the fourth quarter of 2010, and trades for $56 per share today.

InterOil is developing an oil and gas company in Papua New Guinea that will own assets involved in every step of the value chain, from the well-head to retail. It owns one of the largest exploration acreage portfolios. The company has been strengthening its financial position, building its cash holdings to over $1 billion In 2011, following a three-year upward trend. The company had lower sales volumes in the third quarter compared to the same quarter of 2010 due to temporary mine closures for two of its customers. The company also had a net loss of almost $20 million in the third quarter, down from a profit of almost $25 million the previous quarter.

Near term, the company wants to mature a prospect inventory for a continuous multi-well exploration program. The company is now resolving some issues with the region’s government to move forward with its liquefied natural gas project. On December 22, it announced that it had extended the dates for Final Investment Decisions (FID) for its LNG project agreements with Mitsui and Energy World Cup until March 31, 2012. The planned project is a three million tonne per annum land-based LNG plant in the Gulf Province of Papua New Guinea.

Quantum Corp. (QTM)

Soros increased his holding of Quantum Corp. (QTM) by 5941.4% at about $2.40 per share, bringing his total holding to 21,208,239 shares. Previously, he owned 351,049 shares, which he purchased in the third quarter of 2011 at about $2.35 per share. He had owned 64,500 shares in the fourth quarter of 2010 which he paid about $3.30 per share for, and sold out in the subsequent two quarters for about $3 per share. Friday, the stock trades for $2.30 per share.

Quantum Corp. is a 30-year-old backup, recovery and archiving business. The company’s revenue has been shrinking each year since 2007, though it earned a profit of $16.7 million in 2010, and $4.5 million in 2010, after seven years of net losses. The company has also generated ample cash flow for the last five years.

The company has a new profit driver: its DXi6701/02 disk backup and deduplication projects, the most successful branded systems project launch in the company’s history. Growth was also driven by the introduction of its new DXi(R) and StorNext(R) appliances, which helped it achieve its eighth consecutive quarter of year-over-year branded revenue growth. The company has also focused on reducing debt. It paid down $30 million its its senior debt in the second quarter, leaving it with $69 million of senior debt, $135 million of convertible debt and $49 million in cash. Its improved balance sheet helped Standard & Poor’s Rating Services upgrade its outlook for the company from stable to positive.

WebMD Health Corp. (WBMD)

Though Soros has owned a small amount of WebMD shares, he went all in on October 13 when he increased his holding by 4529%, bringing his total to 3,471,885 shares. He increased his holding by 7.29% more on December 31, and now owns a total of 3,724,989 shares.

WebMD is an online site and publications that provides health information to physicians and the public. Since going public in 2005, WebMD’s revenue has grown each year at a five-year annual rate of 23%, and it has generated significant cash flow. The AP reported on December 15 that the company is mulling a sell to one of four private equity firms, including KKR and Providence Equity Partners. AP also noted that WebMD cut its outlook in July and again in November due in part to lower license revenue and reduced consumer-product company spending.

"We are working closely with each of our major customers to put forward a portfolio of digital solutions as they finalize their 2012 marketing budgets," said Wayne Gattinella, president and CEO, WebMD in a press release.

In the third quarter, the company repurchased approximately 2.05 million shares of its own stock for $67 million. It has $1.1 billion in cash on its balance sheet and $800 in aggregate principal amount of convertible notes outstanding. The company is expecting revenue in the fourth quarter of approximately $147 million to $157 million, compared to $168.5 million in the prior year period.

Mercury Computer Systems (MRCY)

Soros has been adding to his holding of Mercury Computer Systems for the last three consecutive quarters, and has held the stock since the second quarter of 2007. On December 31 he increased his holding by 2.66% at about $13 per share and now owns 2,279,746 shares.

Mercury Computer Systems designs, manufactures and markets digital signal and image processing systems and software for both the defense and commercial markets. Soros may have seen an earnings catalyst in the company’s recent purchase of Kor Electronics for $70 million. The deal closed Dec. 30, 2011.

The company’s revenue has increased for the last three years, and it had a net profit of $18.4 million in 2011, decreased from $28.35 in 2010. The previous four years it had a net loss. Each year for the last ten years it has generated positive free cash flow, increasing to $22.7 million in 2011 from $8.4 million in 2010. Mercury believes the projects it is currently working on are shielded from most potential U.S. defense budget cuts. Its business model is aligned with the government’s priorities in defense procurement reform, and it will continue to be the previoer commercial ISR subsystem outsourcing partner to defense prime contractors. It also has the liquidity to grow through acquisitions.

Its first fiscal quarter of 2011’s results were in line with its forecast for the full year 2012 to achieve a year-over-year revenue growth rate of 10%. Due to recently issued shares, it expects full-year 2012 EPS to be approximately flat.


Rating: 3.3/5 (16 votes)

Comments

glavacem
Glavacem - 2 years ago
Any idea his cash position right now?
mycroftpsaras
Mycroftpsaras - 2 years ago
Excellent Article!

I too almost took my Clients to 100% cash in July and actually went to 90%. Right now I am 75% cash, 25% stocks in their portfolios and have been warnings them to "Play it Safe" as well looking for clarity in global events. So both of our systems that we use are coming to the same conclusion. So as you can tell this article made me feel real good.

Thanks for writing it,

Mycroft
tkervin
Tkervin - 2 years ago
85% cash

7.5% Tips

7.5% Fairfax

Just waiting for the Fat Pitch.

....and frankly the cash may go into a couple of business opportunities outside of my current company. I am just not in love with equity investing.

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