Soros Fund Management Bullish on Petrobras, Suncor & DirecTV: 13F Filing Q1 2010

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is George Soros' hedge fund firm, Soros Fund Management. While he is still slightly involved, the bulk of the portfolio activity you see below comes from his son Robert Soros who runs the flagship Quantum Endowment. For 2009, Soros' Quantum Endowment Fund was up 28% as noted in our hedge fund performance numbers list. We follow Soros for sector leans due to their global macro tilt. Given that they dabble in pretty much any asset class they please, remember that the equity positions below are only a brief part of a cohesive whole.

George Soros has in the past voiced his concern over the deleveraging of the US consumer as he feels it could hurt consumer spending (and thus growth) in the future. Soros' thoughts from the markets are detailed in his most recent book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. And of course you can receive a primer on all things finance from the man himself in his first book The Alchemy of Finance.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
Conexant Systems (CNXT) Notes
Cobalt International Energy (CIE)
iShares Emerging Markets Index (EEM) Puts
PNC Financial (PNC)
Telecom Argentina (TEO)
Covanta (CVA) Notes
Westport Innovations (WPRT) ~ we previously detailed Soros' new stake
Solar Capital (SLRC)
Petrohawk Energy (HK)
AMR (AMR)
JDS Uniphase (JDSU) Notes
RF Micro (RFMD)
Nokia (NOK)
ADC Telecomm (ADCT) Notes
Global Crossing (GLBC) Notes
Dow Chemical (DOW)
Staples (SPLS)
Exco Resources (XCO)
International Paper (IP)
Armstrong World (AWI)


Increased Positions
NovaGold Resources (NG): Increased position size by 435.8% ~ we previously detailed this
DirecTV (DTV): Increased by 27.3%
Suncor Energy (SU): Increased by 22.4%
Cadence Design System (CDNS) Notes: Increased by 20%
Lawson Software (LWSN) Notes: Increased by 19.6%
Petroleo Brasileiro (PBR): Increased by 17.7%
Verizon (VZ): Increased by 16.7%


Reduced Positions
Plains Exploration (PXP): Reduced position size by 24.7%
Monsanto (MON): Reduced by 17.4%
Hess (HES): Reduced by 16.1%
Emdeon (EM): Reduced by 12.2%
SPDR Gold Trust (GLD): Reduced by 9.6%


Positions They Sold Out of Completely
Mcdata (inactive) Notes
CSG Systems International (CSGS) Bonds
Terra Industries (TRA)
Select Sector Financials (XLF) Calls
Bunge (BG)
Coach (COH)
Heinz (HNZ)
Sandridge Energy (SD)
Energy XXI (EXXI)
iShares US Telecom Sector (IYZ)
CVR Energy (CVI)
James River Coal (JRCC)
Mechel (MTL)
Steel Dynamics (STLD)
Denbury Resources (DNR)
Windstream (WIN)
McMoran Exploration (MMR)
Patterson-UTI (PTEN)
Sterling Construction (STRL)
Century Aluminum (CENX)


Top 15 Holdings (by percentage of assets reported on 13F filing)

1. SPDR Gold Trust (GLD): 6.95%
2. Petroleo Brasileiro (PBR): 4.63%
3. Hess (HES): 3.46%
4. Suncor (SU): 3.26%
5. LSI Corp (LSI) Notes: 3.2%
6. Petroleo Brasileiro (PBR-A): 2.66%
7. Monsanto (MON): 2.62%
8. Linear Tech (LLTC) Notes: 2.49%
9. Lawson Software (LWSN) Notes: 2.22%
10. Interoil (IOC): 2.19%
11. RF Microdevices (RFMD) Notes: 2.11%
12. DirecTV (DTV): 2.03%
13. Verizon (VZ): 2.00%
14. Flextronics (FLEX) Notes: 1.98%
15. Plains Exploration (PXP): 1.80%

Firstly, please note that since Soros Fund Management is a global macro oriented firm, they undoubtedly have positions in other markets (debt, currencies, commodities) that are not required to be disclosed by the SEC. As such, the above is only partially representative of Soros' portfolio. That said, you can definitely see some themes via their equity exposure as they are long various oil and agriculture names.

Additionally, they seem to like the satellite play DirecTV (DTV). As we've detailed previously, Chase Coleman's hedge fund Tiger Global is bullish on DTV. It was also interesting to see Soros have a sizable long in Interoil (IOC) as many investment managers and pundits have labeled IOC as a potential fraud. Whitney Tilson's hedge fund T2 Partners has been short IOC under the notion that IOC has no real proven reserves and is essentially just a public relations hype machine. This dichotomy of opinion is what truly makes a market.

Overall, the natural resource and energy theme continues to garner a prominent position in Soros Fund Management's portfolio. Gold is their top holding, followed by large stakes in Petrobras, Hess, Suncor, Monsanto, Interoil, and Plains Exploration. They also show a large addition to NovaGold Resources, but we had already mentioned this position increase back when the transaction took place as both Soros and John Paulson bought shares.

Assets reported on Soros' 13F filing were $8.75 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 14 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, John Paulson's hedge fund Paulson & Co, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, Phil Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, and Shumway Capital Partners. Be sure to check back daily for new hedge fund updates.

Analyst Calls & Goldman Sachs Conviction Buy List

I've said before that I typically don't place too much weight on analyst calls, but today numerous analyst calls caught my eye and I wanted to post them up.

Firstly, in the oil arena, there were a few active analysts who revealed a myriad of opinions. Firstly, Morgan Stanley upgraded Transocean (RIG) to Overweight, citing that they think the credit crunch gives them an advantage, as smaller drillers will struggle to finance projects. This makes sense to me just given the fact that RIG is a behemoth in the drilling space now. But, I wouldn't cite it as one of the main reasons they will outperform. They've got tons of rigs already and have other ones scheduled to come off construction in coming years. RIG is easily one of my favorite long-term plays due to their dominant market positioning, their ability to raise dayrates fairly consistently, and the armada of rigs that they will have coming online in the near future.

Back in September, RIG was added to Goldman Sachs' Conviction Buy List. Shares have been demolished as of late, offering a possible opportunity for those with a long-term bullish thesis on oil and deepwater drilling. Boone Pickens' BP Capital had RIG as their 2nd largest holding as of last quarter. RIG has been trampled partly due to the decrease in the price of oil and partly due to forced selling by various hedge fund and mutual fund names. Overall, I figure RIG is a solid buy as long as oil remains above $70 a barrel, which gives them enough room to still maintain or increase the high dayrates they charge. They are seeing operating margins of 46% and return on equity of 38%. Their valuation is absurdly cheap, but I won't dwell on that given the fact that in this market, valuation got thrown out the window a long time ago. And, the cheap can always become even cheaper. But, the fact is that this company has solid fundamentals going forward long-term. They are seeing quarterly revenue growth of 116% and quarterly earnings growth of 101% on a year over year basis. They do have a lot of debt, but their strong cashflow generation should alleviate any major stress from that.

There was also a bevy of other oil related calls today by an analyst from Deutsche Bank. They downgraded tons of oil names, citing a worldwide recession in 2009. They have cut oil price forecasts to $60 per barrel in '09 and $58 per barrel in '10. They wrote, "This view implies that the marginal oil company will make zero profit for the next two years. It implies leveraged oil companies may go bankrupt. It implies GDP-sensitive (ie refiners/chemicals) companies will suffer. Ultimately, it strongly suggests upheaval in oil-revenue dependent states." While anything is possible considering the grave state of numerous economies worldwide, I still do not think a worldwide recession is in the cards. This will have to be continually evaluated as we receive new data each quarter, but I think this is a slightly harsh call. Should a worldwide recession emerge though, their call makes sense in that the leveraged companies will find it increasingly difficult. They have downgraded a myriad of names, including Marathon (MRO), Conoco Phillips (COP), Suncor (SU), and Hess (HES) among others. Its interesting to now note that they only have "buys" on two oil names: Occidental (OXY) and Canadian Natural Resources (CNQ). OXY is a name that has seen vast hedge fund ownership, including by that of Atticus Capital, Caxton Associates, Tudor Investment Corp, and BP Capital, among many others.

Lastly, Goldman Sachs was out making changes again to its Conviction Buy List. They added Waste Management (WMI) to the list, and removed Allied Waste (AW) from the list. However, they still maintain a 'buy' rating on AW (just not a 'conviction buy'). Additionally, they also added Marsh & McLennan (MMC) and Applied Materials (AMAT) to their Conviction Buy List.

Goldman Sachs Conviction Buy List Update

Yesterday (10/2), Goldman Sachs (GS) was out making some changes to its esteemed conviction buy list. They removed Freeport McMoran (FCX) from the list, but still reiterated a normal 'buy' rating on the name. Additionally, they have added Suncor (SU) to the list.

Copper mining giant Freeport McMoran (FCX) hit a new 52-week low of $45.17 yesterday as it continues to get obliterated. Just a few months back, it was trading as high as $125. Nowadays, amidst the commodity sell-off, deleveraging, and hedge fund redemptions, FCX is getting no love. Its valuation is borderline absurd, trading at around a 5 trailing PE and a 3.9 forward PE. But, valuation got thrown out a long time ago in this market environment. Hedge fund giants such as Timothy Barakett's Atticus Capital and Philip Falcone's Harbinger Capital had massive positions in FCX as of their most recent respective 13F filings with the SEC. Undoubtedly, the decline in FCX's share price has hit these funds hard. And, they most likely have been contributing to the selling. Last time we checked various hedge fund's year-to-date performances, Atticus was down 25% for the year and Harbinger, after being up 42% for the year, now finds themselves up only 2% (more numbers here). You can view Atticus' portfolio holdings here and Harbinger Capital's portfolio holdings here. Additionally, you can read more about Harbinger's exploits here.

Suncor (SU), on the other hand, was being added to the conviction buy list as shares continued to tumble. SU has fallen from a high of $73 to current levels of $33. Canadian Oil Sands giant Suncor (SU) is owned by numerous hedge funds, including legendary oil maverick T. Boone Pickens' BP Capital. And, as you can imagine, the share price depreciation in SU has affected Boone's portfolio in a negative way. Although not the sole reason for his funds' decline, Boone still finds himself down $1 billion for the year. You can view all of T. Boone Pickens' BP Capital equity holdings here.


Source: StreetInsider 1, 2

Stop Losses

I want to point out 3 charts that I've monitored/been monitoring. Each chart points out a separate staple of technical analysis. Yet, at the same time, they all illustrate the use of a stop loss and how you can identify where to place your stop on your holdings.

1.) Support/Resistance. These are areas on the chart that you can visibly see a stock either having trouble breaking through at, or finding support at. These are visual representations of the price action in the underlying stock. In this specific example, I want to focus on how you can use support/resistance to your advantage in terms of either placing stop losses or price targets. In this case, US Bank (USB) was considered to be a conservative bank. But, since they are still a bank, they are still a good house in a bad neighborhood. The dividend is nice and all, but the chart gave me a clear signal after it could not find support at a level of past support. I thus placed my stoploss right below this area of support. So, if the support failed to hold, I knew the stock would be headed lower and I would need to get out. And, that's exactly how it played out. On the chart, you can see a strong area of past support around $28. So, I placed my stop below that and got stopped out accordingly once it broke down past support. This stop loss saved me from the ensuing 25% drop USB experienced. This is the perfect example as to why you should have a stoploss on all your holdings. (Oh, and for those curious, I was only in USB to begin with because I was employing a buy-write strategy. They have a solid dividend, so I was pocketing the dividend (5%+) and then writing covered calls on the name every month to pocket more money since the stock essentially traded sideways for a long time).

(click to enlarge)

2. Trendline. Mastercard (MA) is sitting on a longer term support line right now. Once again, the quote of the week has been "The trend is your friend." Once the trend ends, get the hell out. So, take all the lows of the trend and connect the dots making your trend line. If the stock breaks below the trendline, it is most likely going lower and you need to get out. Place your stop loss accordingly. So, for instance, in MA, I would be buying this dip as it is on longer term support from the trendline. Secondly, it has filled the gap (but that's a whole nother topic). Then, place your stop just below the trend line. If it breaks, its going lower. For the graph below, focus on the green trendline I've drawn in.

(click to enlarge)

3. Head and Shoulders Pattern. This pattern pops up all over charts all the time. And, if you can spot it, you can benefit from it as this pattern is typically bearish. For this example, I want to focus on Suncor (SU). I'm actually very bullish on this name for the long term. But, for now, I'm using the technical analysis to my advantage. I've spotted a head and shoulders in this name and it could potentially trade much lower (especially if oil prices continue their decline). I've highlighted the two shoulders and the head with green circles. As you can see, the head is the peak of the formation and the shoulders are on either side, at the same price level. Then, the bottom of the formation is accompanied by a 'neckline' where the two shoulders form their bases. For SU, this neckline is at $55 and is the make of break point. This level represents support as the stock has previously bounced twice at that level. So, if it breaks the level to the downside, the stock could trade much lower. Now, for all intensive purposes, this stock could just continue to trade higher and not complete the H+S pattern. But, the point is that once you identify the neckline, you've identified your stop loss. For SU, you'd place a stop loss below $55 and call it good. You can get short anywhere below that level. Or, if SU holds that level, then you can get long. For now, the pattern is an *anticipatory* head and shoulders. It hasn't actually completed the pattern so I am technically jumping the gun here. If it trades down to $55 and then breaks the neckline, then it will be complete. Again, for all I know, this name could continue to march higher. But, its just something good to consider when managing your holdings. Also note that this chart makes uses of support/resistance as well (the neckline).

(click to enlarge)