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With 2011 well under way, investors are wondering what surprises the markets will hold this year. And the predictions are coming out of the woodwork.But while opinions fly, what stocks should you really be looking at this year? Let’s ask a billionaire.
George Soros made his mark on the financial world in the early 1970s when he and partner Jim Rogers founded the Quantum Fund, a hedge fund with an international bent. Today, the fund, which started with $12 million, has estimated assets under management of $27 billion.
And Soros has done well himself. Forbes estimates that the investor is worth $14.2 billion, earning him the No. 14 spot on the magazine’s list of the 400 richest Americans.
While Soros may not be detailing his investment ideas to the public, his firm’s latest SEC filings do give us an idea of what he’s buying right now.
Here’s a look at three of the stocks that Soros and his investment team are bullish on to start 2011, all of which were new positions for Soros in the most recently reported quarter.
In the last quarter, Soros’ biggest buy wasn’t actually a stock. His firm spent $64 million on shares of the iShares Gold Trust (IAU), an exchange-traded fund whose shares are backed by actual gold bullion held in London, New York and Toronto.
To be fair, IAU isn’t Soros’ first foray into a gold fund; in fact, his firm owns stakes in a number of other gold plays as well (including other gold funds and other investments, such as gold miners).
IAU is designed to track the spot price of gold less a management fee, which is paid for by selling off a small portion of the fund’s holdings. That said, at 0.25% per year, the fund’s expenses are among the lowest of the gold bullion ETFs, which have become incredibly popular over the last few years.
Taxes are something you’ll want to consider if gold funds look attractive right now. Because this fund invests in bullion, any gains are actually taxed the same as ordinary income.
Despite the red hot rally that precious metals have undertaken in the last couple of years, the price appreciation doesn’t look ready to slow in the first part of 2011. If you’re looking for exposure to gold for your portfolio, following Soros’ low-cost lead might be a prescient move.
TheStreet Ratings rates IAU a hold.
Integrated communications firm CenturyLink (CTL) provides local phone service and Internet access to millions of customers in 33 states. All told, the company is the fourth-largest exchange carrier in the U.S. Soros Fund Management made a big bet on the firm in the most recent quarter, buying a $61 million stake in the firm.
Today’s CenturyLink is the result of a series of mergers and acquisitions, the most recent being the ongoing purchase of Qwest Communications (Q) announced back in April 2010. The Qwest merger is CenturyLink’s biggest growth attempt to date and should ultimately create a nationwide carrier with a significantly improved financial profile and customer base.
Right now, CenturyLink’s bread and butter is the rural phone customer who has little in the way of carrier alternatives (and thus little competition for CTL). While an expanding footprint has introduced more competitive elements to CenturyLink’s business, investors should continue to expect the company to court customers tied to fixed-line telco service.
Cost is going to be key for the CenturyLink/Qwest merger. With integration costs likely to be quite high in the first year of combined operations, the company will need to quickly reap the benefits of the combination (namely merger savings and expanded scope) to keep investors’ interests.
Soros isn’t the only one with his on on CenturyLink. Jim Simons’ Renaissance Technologies also owns shares, having increased his position by almost 400% in the most recent reporting period, and Scott’s Investments recently included the stock in its list of 11 high-yield, high-momentum stocks. Recently, insiders at CenturyLink dumped more than $16 million worth of stock, earning it a spot on the list of stocks with large insider selling.
The last few years have been surprisingly good for luxury goods retailer Coach (COH). While firms driven by consumer discretionary spending — especially those that catered to the affluent — saw big cuts in their revenue generation abilities in 2008 and 2009, Coach actually enjoyed growth by shifting its focus to lower-priced products and pushing its presence abroad to countries with burgeoning middle class populations.
That’s not to say that developed nations aren’t still providing growth for Coach. Increased consumer spending in the U.S. and significant product popularity in Japan together contribute 92% of the firm’s overall revenues — not to mention nearly 20% annual revenue growth. But China is already proving to be a successful market for the firm’s wares, and the firm is opening locations in the People’s Republic at breakneck pace as a result.
With deep margins and incredibly strong brand popularity, Coach looks well-positioned to ride out 2011 on top. Apparently, Soros agrees. Coach was one of the largest new investments at Soros Fund Management last quarter, with a $17.3 million stake going to the Hungarian-born investment guru.
Soros has company in fellow Coach holder Richard Aster at Meridian Fund, who also owns shares of Family Dollar (FDO). Coach was one of the 10 best S&P 500 stocks of the past decade, and Sterne Agee analysts consider it one of the 12 top consumer stocks for 2011. On a recent “Mad Money” episode, Jim Cramer told viewers that Coach was one of several stocks with the most to gain from exposure to China.
TheStreet Ratings rates Coach a buy.
To see the rest of George Soros’ favourite stocks, check out his updated portfolio on Stockpickr.
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