George Soros is a legendary name in the hedge-fund industry. In 2011, Soros returned outside investors’ capital, and converted Soros Fund Management into a family office.
While Mr. Soros has long since given up the day-to-day management of Soros Fund Management, investors and financial journalists continue to track the Soros family’s investments closely. Among the stocks Soros Fund Management owned throughout the first quarter, these three produced the highest quarterly returns:
Alliance One International, Inc. (NYSE:AOI)
Q1 return: 53.1%
YTD return (through 05/19): 114%
Alliance One is an independent leaf-tobacco merchant that supplies cigarette companies worldwide. With a market value of roughly $220 million, this is a micro-capitalization stock.
Interestingly, Soros is not the only legendary name to be associated with Alliance One. Seth Klarman’s Baupost Group started building a position in the stock at the end of 2009, only exiting it fully during the third quarter of 2015 — and missing this-year’s rally.
On paper, Alliance One would appear to be well positioned to earn attractive returns. The global leaf-tobacco market is essentially a duopoly, with Alliance One the leader in most major tobacco-growing regions. However, it turns out that the industry is highly competitive, with price being the main criterion on which companies compete.
Marred by uneven profitability and high leverage (total debt is more than six times equity), Alliance One International is a stock for only the highly experienced and/or the adventurous.
Michael Kors Holdings Ltd (NYSE:KORS)
Q1 return: 42.4%
YTD return: 1.6%
Shares of fashion-house Michael Kors had a tremendous first quarter, but they have since given up nearly all their gains… which is essentially the story of Michael Kors’ stock since the company went public in December 2011. The stock sprinted out of the gate, quadrupling in price in just more than two years’ time. From its peak in February 2014, however, the shares went on to lose nearly 60% of their value, and are now trailing the S&P 500 from the initial public offering date.
Of the three stocks presented here, this looks like the most-interesting idea. For example, earlier this month, on May 11, the stock fell nearly 12% following Fossil Group Inc‘s earnings miss (which fell 29%!). Fossil Group sells branded products (mainly watches) under license from Michael Kors, but the magnitude of Michael Kors’ share-price decline demonstrates the market’s misunderstanding of Fossil’s contribution to its business, according to independent analyst Paulo Santos.
There’s no question that retailers had a difficult first quarter, but at just more than nine times the earnings estimate for the current fiscal year, that (and other risks) appear to be more than priced into the valuation. With excellent returns on invested capital — more than 40% for the last three years, according to data from Bloomberg — and no net debt, Michael Kors is an intriguing idea. The company reports its fiscal fourth-quarter results on June 1.
Wynn Resorts, Limited (NASDAQ:WYNN)
Q1 return: 34.9%
YTD return: 29.3%
Soros is not the only savvy investment group associated with Wynn Resorts. Southeastern Asset Management, which runs the Longleaf Partners Funds, owned 12.3% of the casino operator at the end of the first quarter. (Soros is not a top investor; in fact, they have essentially exited the stock, which they first bought in the first quarter of 2015).
I’m not a fan of casino operators, as they tend to be highly leveraged; with $7.3 billion in net debt, Wynn is no exception. However, at the right price, it may be appropriate for the enterprising investor. If you want to read the bull case for this stock, let me recommend an article by my Foolish colleague Travis Hoium, who wrote in January that Wynn Resorts could double in 2016. The stock is up 51% since then.
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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool owns shares of Michael Kors Holdings and Wynn Resorts, Limited. The Motley Fool recommends Fossil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.