George Soros Is Buying This Stock… Should You?
I’m constantly looking for investment ideas. Every day I’m running fundamental stock screens, scanning charts, and devouring the financial news. It’s a full time job… fortunately for me, it is my job.
In addition to the usual techniques, I also employ a less well known method for finding hidden gems. I keep an eye on what some of the better hedge fund managers are buying.
How do I do it?
I jump on the EDGAR system at the SEC website. EDGAR stands for Electronic Data Gathering, Analysis, and Retrieval system. It’s a database of forms, companies, big investors, fund managers, and others required to file with the SEC.
You can find a ton of information here if you know what to look for. Everything from annual reports to quarterly reports to insider trades are published on EDGAR.
One specific filing provides enormous insight into what hedge fund managers are buying. I’m talking about Form 13F. It’s the form certain institutional investment managers must file quarterly to disclose their investment holdings.
By reviewing a hedge fund’s 13F filings on a regular basis, you can see what stocks they bought and sold during the prior quarter. It’s a great way to get timely ideas for further research.
One hedge fund that I regularly follow is Soros Fund Management. As you might have guessed, this fund is managed by legendary investor, George Soros. He’s listed by Forbes as the 29th richest person in the world with a staggering net worth of $11 billion.
Soros is one of the all time best at making huge amounts of money from plays on macroeconomic trends. One of his most famous speculating exploits was his British Pound currency trade on September 16, 1992.
That day is now remembered throughout England as “Black Wednesday”. It was the day Soros forced the British government to withdraw the pound from the European Exchange Rate Mechanism (ERM) and devalue the currency.
The ERM was a system introduced by the European Community in 1979 to reduce variations in exchange rates. Its purpose was to establish monetary stability in Europe leading up to the introduction of the euro.
The British government’s decision to join the ERM was a controversial one. Many public servants and citizens thought it was a bad idea. This led to rampant speculation the government wasn’t 100% committed.
On Black Wednesday, the speculators struck. They began selling the pound to drive its value below the minimum lower limit required for participating in the ERM.
At first, the government tried various ways to prop up the sinking pound. They raised interest rates from 10% to 12% and finally to 15%. They spent billions buying up pounds as they were frantically sold in the currency markets.
But, all of their efforts failed.
In the end, the government withdrew the pound from ERM and devalued the currency. Soros was one of the major forces driving the pound lower.
His fund shorted some $10 billion worth of pounds that day. You might say he was “all in” on this trade. And, by the end of the day, Soros pocketed a stunning $1.1 billion profit. (Not a bad days work…)
Ever since, Soros has been called “the man who broke the Bank of England”.
Getting back to the recent 13F filing…
Soros Fund Management filed a 13F on September 23, 2009. It shows several changes have been made to their portfolio in the past three months. They’ve added to some positions, scaled back others, and completely liquidated a few.
But, one item sticks out from all the rest.
A brand new position in a little company called Emdeon (EM). The fund purchased 6,274,000 shares of EM for a healthy 7% ownership stake. My interest was piqued so I did a little more digging.
Here’s what I found.
EM just completed its IPO on August 12, 2009. The company sold 23.7 million shares at an offering price of $15.50. They raised a cool $367 million in proceeds.
In its market debut, the stock jumped nearly 18% to a high of $18.24 before falling back. It ended up closing at $16.52 for a first day gain of just 6.6%. Although the company garnered a market cap over $1 billion, they didn’t receive a very enthusiastic reception from investors.
I find this intriguing.
You see, it looks like EM will benefit from healthcare reform in a big way. No matter what the final form. Last year, EM processed half the electronic payment claims filed in the healthcare industry. That’s more than four billion transactions!
Most claims are still processed manually, which is terribly inefficient and costly. EM’s system goes a long way to solving that problem. It provides the single largest financial and administrative information exchange in the industry. This is exactly the kind of business Obama is counting on to cut costs in the bloated healthcare system.
Clearly, EM’s perfectly positioned to cash in on this trend.
A number of analysts are now covering EM. The average revenue estimate is $920 million for 2009 and $1 billion in 2010. Consensus earnings estimates are for $0.80 this year and $0.88 next year. Their projected long-term estimate is for 15% annual growth.
These shares could take off once a final deal on healthcare reform is done. George Soros apparently thinks so. He bought 7% of the company. Take a closer look at EM for your own portfolio. It just might be a big winner for you down the road.
Category: Stocks
