Billionaire investor George Soros and his team of advisors take
a "top-down" approach. This means they seek out big, "macro"
investing themes, and then work their way down to the best ways to
play that theme. Every quarter, they adjust their stakes in a range
of companies, either by loading up or pulling back, while also
looking to enter a few new positions.
In the most recent quarter, Soros, through his financial services
company Soros Fund Management, added two brand new positions to his
portfolio. Each could be viewed as a
for major themes playing out in the globaleconomy .
Here's why they're worth looking into…
This ticker symbol says it all. Adecoagro owns and operates nearly
40 massive farms in Brazil, Argentina and Uruguay, a region known
for fertile and productive land. Indeed, agriculture has always
been the leading export in Argentina, but it also now holds the top
in Brazil's export
. This isn't just a play on soybeans or wheat either. It's also a
play on cotton, rice, sugar cane-based ethanol, dairy cows, coffee,
sugar and other commodities. This all means Adecoagro's annual
results aren't subject to the vagaries of volatile prices for any
particularcommodity , though it surely helps that just about all
the items noted above have seen a surge in price in recent
For George Soros, his $330 million investment (of roughly 27
) in Adecoagro is the perfect play for the ongoing global
demographic changes that are taking place. As the global population
continues to rise, the amount of unused arable land continues to
shrink. In addition the growing middle classe in many
are consuming ever more calories on a per-capita basis.
Beyond the demographic appeal of South American agriculture, Soros
has likely spotted three other reasons to own this stock. First,
appears set to rise nicely in the near-term, from $74 million in
2010 to more than $150 million this year, and to $200 million by
2013, according to one of Brazil's largest banks, Banco Itau.
Second, high-quality agricultural land is becoming a scarce
as new cities pop up in formerly rural areas of South America and
Asia. Soros likely anticipates solid
potential in the land Adecoagro holds. Third, Adecoagro plans to
aggressively ramp up its ethanol business. Unlike the U.S.
production of corn-based ethanol, which needs the help of
government subsidies, Brazil's sugar cane-based approach is
considered to be more cost-effective and more environmentally
sound. In a world of high oil prices, sugar cane-based ethanol is
likely to see rising demand.
Adecoagro pulled off a $11
initial public offering (IPO)
in late January, rose higher, but now trades right at the offering
price. The main reason for the underwhelming post-IPO action is in
the complex nature of the company's business. In effect, investors
need to figure out a value for each distinct business group. For
example, the ethanol business alone is likely worth about $1
billion, according to Banco Itau. The bank's analysts think shares
deserve to trade up to $16 (implying a 30% gain) over the course of
this year, and perhaps well higher down the road as the company's
growth plans come into focus and its
holdings appreciate in value.
Look for Soros to hold this stock as a key long-term position for
his eponymous investment fund. For the rest of us, Adecoagro
provides a way to get into farming without getting down in the
dirt, as I discussed
in this article
earlier this year. Thebottom line is that farmland has been a solid
investment for a long time and will likely remain so for many years
One of the most stunning consequences of the recent global
was the absolute implosion of demand for new cars and trucks. Many
key auto makers and their key suppliers had been used to operating
with lots of debt, so when the downturn hit and sales began to
slide, they either had to cut costs drastically, seek government
bailouts or file for bankruptcy, as was the case with
General Motors (NYSE:
and Chrysler in 2009. Visteon, which is an auto-part maker and a
Ford Motor (NYSE:
spin-off, couldn't avoid the maelstrom and sought bankruptcy
protection as well.
But that's beginning to look like ancient history now: Visteon went
public once again last October (with a much cleaner
) and saw its shares rise from about $50 to $75 before a recent
pullback down to $61. George Soros' firm established a new
2.1-million share position (worth about $125 million), presumably
after the stock suffered a 20% drop in just two days in early
March, after announcing a year-over-year decline in first-quarter
sales and profits.
So why would Soros buy a stock that is in the midst of a slump?
It's because the slump likely won't last. A series of headwinds
recently emerged in the auto sector, most notably a spike in raw
material prices, which I noted in a recent
analysis of Ford's stock
Yet the longer-term outlook remains quite bright. Industry sales
are expected to continue to rebound in the next few years. Visteon
is now much leaner and could generate peak profits in coming years.
The company has closed roughly 50 plants, seen its operating
margins expand 500 basis points to 4% and looks positioned to get
that figure up to 6% or 7% in a few years as revenue rises.
Investors need not worry that the company's prospects are simply
tied to those of Ford -- the auto maker accounted for 88% of sales
a decade ago, but today accounts for just 25%. (Hyundai is actually
the biggest customer now,accounting for 28% of sales -- a real
blessing when you note Hyundai's robustmarket share gains taking
place right now.)
Weak first-quarter results surely hurt the company's near-term
momentum, but analysts at UBS still think shares hold real value.
They recently lowered their target price from $85 to $78. This is
still nearly 30% above the current price. But Soros may need some
patience: "While we still like the long-term story, (2011) guidance
will likely raise investor concern about the company and may keep
the valuation depressed until investors can gauge how much the weak
guidance reflects management conservatism vs. fundamental issues
with the business," note the UBS analysts.
Action to Take -->
Soros is clearly bullish on agriculture and the auto industry, as
his recent purchases highlight. Piggybacking on his moves has
proven quite fruitful for investors in the past and could be the
case with Visteon and Adecoagro as well.
-- David Sterman
P.S. -- If you're an income investor, why would you buy a stock
yielding 2% when you can find one paying 26% right here? Watch this
presentation for more.
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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