You don't make billions in the stock market without knowing a thing or two about how to find the best stocks available today.
Even in an era where high finance is becoming increasingly dominated by computerized trading -- the so-called "rise of the quants" -- investors and the media still pore over the quarterly 13F filings large money managers must file. Let's dive into why David Einhorn bought General Motors (NYSE:GM) and George Soros likes FireEye (NASDAQ:FEYE).
It's hard to overlook GM's rock-bottom valuation, and this fact certainly hasn't been lost on billionaire hedge-fund manager David Einhorn of Greenlight Capital. Greenlight currently owns a roughly $1.9 billion stake in the automaker, making it the fund's single-largest holding by a wide margin and making the fund the ninth-largest GM shareholder.
Einhorn believes GM can fix its absurdly cheap stock price -- its 5.3 price-to-earnings ratio is among the lowest in the S&P 500 -- by splitting its shares into a dual-class stock structure. Under this scenario, GM would distribute one share of a newly created dividend stock for each current outstanding share of its common stock.
This new dividend-class stock would pay a fixed dividend of $1.52 per share, GM's current dividend rate today. GM's current common stock would then be entitled to all other future residual profits beyond the $1.25 that would go toward to the dividend stock. Einhorn believes the two new shares combined would be worth between $43 and $60, compared to GM's current stock price of near $34 per share.
Unfortunately for Einhorn's ambitions, Greenlight's proposal was defeated during GM's annual shareholder meeting on June 6. It remains to be seen whether this billionaire hedge-fund manager intends to pursue this investment further, but GM's cheapness alone makes it worth noting for retail investors in a market where few clear-cut bargains exist.
It's been a tough few years for FireEye investors, but recent signs suggest that the data-security firm may have finally turned a corner. A recommendation in several of The Motley Fool's premium subscription newsletters, FireEye stock has struggled to maintain its momentum since the start of 2015. However, the company's shares jumped an impressive 20% in May alone, which should come as welcome news to billionaire hedge-fund legend George Soros. According to the most recent 13F filing for his family office Soros Fund Management, Soros was FireEye's single largest shareholder, with a stake of roughly $245 million. His position in FireEye, which dates back to the second quarter of 2016, was also Soros' fourth-largest holding.
Though the company has taken its lumps along the way, FireEye's most recent earnings report sent a strong signal that it is well on its way to generating self-sustaining profits. The company's $173 million in sales came in way ahead of its $160 million to $163 million guidance, and its year-over-year gross margins expanded from 70% to 73%. These top-line improvements combined with recent cost-cutting efforts to dramatically staunch FireEye's non-GAAP (generally accepted accounting principles) net losses, which contracted from $0.47 in the first quarter of 2016 to $0.09 in Q1 2017.
FireEye's growth appears likely to remain moderate but consistent. Analysts' consensus estimates see sales growth accelerating from 2.2% in 2017 to 8.9% next year. In the medium term, Wall Street estimates FireEye will compound its earnings per share at an average annual rate of 15%.
As any number of recent headlines will reiterate, security breaches are not going away. If anything, they should increase as businesses continue to bring more processes and information online. As a company on the forefront of helping businesses stay one step ahead of the hackers, FireEye -- like Soros by extension -- seems poised to profit from this long-term trend.