| My Top 2 George Soros Picks | For more than 40 years, George Soros delivered an average annual return of about 20% to the investors in his hedge fund. At that rate of return, a $10,000 investment when the fund was started in 1969 would have grown to more than $20 million when Soros closed the fund in 2011.
Soros did not provide day-to-day management for the fund throughout its entire history, but he was the driving force behind those gains.
He may be best known for his success in the currency markets. Soros is the trader who broke the Bank of England and enjoyed a $1 billion profit in a single day. But Soros started his career as a stock market analyst and demonstrated his extraordinary talent for investing in his 1987 book The Alchemy of Finance. His stock selection was responsible for most of the returns in his hedge fund. His fund more than doubled in about a year while he was documenting his thoughts about the markets. The Alchemy of Finance also includes a detailed discussion of Soros' investment philosophy. Soros wrote, "Most of what I know is in the book... I have not kept anything deliberately hidden." Soros also acknowledges that he has written "a difficult, dense book." It requires study to understand but is well worth the effort.
His theory of reflexivity is interesting, but investors can benefit from this theory even if they find it difficult to understand. As a large investor, Soros is required to disclose his holdings at least once every three months. It takes time for an investor with billions of dollars under management to make significant moves, so portfolio changes are a clue to Soros' thinking. From his most recent filing, which reveals what Soros was holding at the end of June, we can spot broad trends in his trading.
Soros holds a large number of stocks, more than 220 at the end of June. He also uses call options to gain exposure to companies without tying up a large amount of capital. However, his portfolio is not as diversified as it sounds. For example, he seems to like the cable television industry and owns at least six different stocks in that sector.
As individual investors, we cannot hold 200 or more stocks. To overcome this problem while still benefiting from Soros' stock-picking expertise, I developed a system that identifies stocks with high relative strength (RS) and strong cash flow growth. These two factors have been proven to be cornerstones of successful investment strategies.
Using this system to find the strongest stocks in Soros' portfolio right now, two buys are Lions Gate Entertainment Corp. (NYSE: LGF) and LinkedIn Corp. (NYSE: LNKD).
Lions Gate Entertainment is a movie producer whose hits include the Twilight and Hunger Games franchises. LGF has grown its free cash flow by an average of more than 20% a year over the past five years. The stock has gained more than 130% since the beginning of the year and has an RS rank of 95, indicating that it has outperformed 95% of stocks in the past six months.
LinkedIn is a social media site for professionals with more than 225 million users. LNKD generates revenue from corporate recruiters who access the resumes of members, advertisers and premium users.
The company reported revenue of more than $1.2 billion in the past 12 months. LNKD has been profitable since 2010, and analysts expect the company to see earnings growth averaging 60% a year over the next five years. Free cash flow growth has averaged 100% a year for the past three years.
Since going public in 2011, LNKD has gained almost 150%, with most of that gain coming since the beginning of this year. LNKD is up nearly 120% in 2013. With an RS rank of 91, LNKD has outperformed 91% of the market in the past six months.
LGF and LNKD have been market leaders for the past six months, and have been rated as buys by one of the best investors in the world.
My latest research shows that following market gurus like Soros is one of the best ways to make money in the stock market. And Soros is just one of the 20 investing gurus I follow.
But it's not as simple as looking at their portfolio and buying what they hold. Timing matters.
I've come out with a new free report that helps you understand exactly how you can beat the best gurus in the country at their own game. To get access to the free report, "How to Outperform Soros, Icahn... or Even Buffett," click here.
| Dr. Melvin Pasternak's Trades & Updates | | Company (symbol) | Trade Type | Buy/Sell Date | Buy/Sell Price | Stop-Loss | Current Price | Total Return | | SPDR High Yield Bond ETF (NYSE: JNK) | Long | 01/30/12 | $39.94 | $39.36 | $39.59 | -0.9% | | Procter & Gamble (NYSE: PG) | Long | 03/04/13 | $76.25 | $76.42 | $79.05 | 3.7% | | Coca-Cola (NYSE: KO) | Long | 04/08/13 | $40.06 | $37.49 | $38.69 | -3.4% | | Waste Connections (NYSE: WCN) | Long | 07/08/13 | $42.22 | $43.08 | $43.66 | 3.4% | | Beazer Homes USA (NYSE: BZH) | Long | 07/08/13 | $17.55 | $17.63 | $18.02 | 2.7% | | View all closed trades here. Stock prices in this issue are as of the close of trading on September 13. | | Editor's Note: This will be the last issue of the Trade of the Week updates. However, Dr. Pasternak will continue to provide regular weekly trading picks in either Trade of the Week or on Profitable Trading. All stop-losses and targets below are the final ones that will be issued on these trades.
SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK) had a small gain over the week. The ETF is currently straddled between support and the rising 50-day moving average and resistance at the upper Bollinger Band. Daily RSI is just above the key 50 juncture. Daily MACD is still on a buy signal. I purchased the fund at $39.94. My final stop-loss is being revised to $39.36, just below support at the middle Bollinger Band. My final target is revised to $41.10, the May 2013 high.
Procter & Gamble (NYSE: PG) moved up over the week, following news the consumer goods company will implement a strategy of introducing high- and low-end consumer staples like tampons and laundry soap. Shares are currently just above support at the middle Bollinger Band. The flat 150-day moving average intersects slightly below. Daily RSI is just above the key 50 juncture. I purchased shares at $76.25. I'm up more than 3.5% on the trade. I'm revising my final stop-loss to $76.42, the current intersection of the lower Bollinger Band. I'm revising my final target to $82.40, the August high.
Coca-Cola (NYSE: KO) made a small gain over the week, following news the beverage company will introduce a hot ginger-ale beverage in a self-heating can, which will first be available in Japan. Shares of the soda giant are currently sitting between support at the middle Bollinger Band and resistance at the upper Bollinger Band. Daily RSI is nearing the key 50 juncture. Daily MACD and stochastics are on buy signals. I purchased shares at $40.06. I'm down more than 3% on the trade. My final target of $44.30 and stop-loss of $37.49 remain.
Waste Connections (NYSE: WCN) gapped higher this week. The waste management stock is sandwiched between support at the intersection of the middle Bollinger Band and 50-day moving average and resistance at the upper Bollinger Band. Daily RSI is above the key 50 juncture. Daily MACD has just flashed a buy signal. I purchased shares at $42.22. I'm currently up about 3.5% on the trade. I am revising my final stop-loss to $43.08, near support marked by the rising 50-day moving average. I am revising my target to the August high of $44.22.
Beazer Homes USA (NYSE: BZH) moved higher early in the week, but then retreated despite news the National Association of Home Builders' (NAHB) Improving Market Index (IMI) showed homebuilding is on the rise in 80% of all metro areas within the United States. The stock is currently sitting between support at the flat 150-day moving average and resistance at the upper Bollinger Band. Daily RSI remains above the key 50 juncture. Daily MACD is still on a weak buy signal. I purchased shares at $17.55. I'm up more than 2.5% on the trade. I'm revising my final stop-loss to $17.63, just above support marked by the intersection of the 150-day moving average. My final target of $23.29 remains.
-- Dr. Melvin Pasternak
Co-Editor, Trade of the Week
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