George Soros's most-promising picks

Small- and mid-cap stocks don't get as much attention from bankers, third-party analysts and the media, which often leaves them less-efficiently priced than their larger peers. Generally speaking, hedge funds take advantage of this by dedicating their research teams to work on the little guys, and consequently, they generate a significant portion of their alpha from the small-cap world.

At Insider Monkey, we've empirically tested this phenomenon, and according to our own analysis, investing in the hedge fund industry's top small-cap picks has generated an alpha of about 120 basis points per month. 

Let's take a look at the top small-cap stock picks of one hedge fund in particular: George Soros's Soros Fund Management. The stocks presented here have market capitalizations between $1 billion and $5 billion, which is consistent with the criterion used in our strategy ( see all of George Soros's stock picks ). 

According to its last 13F filing with the SEC, the No. 1 small-cap stock in Soros's fund was Adecoagro SA AGRO +1.34% . With a little under 26 million shares, Soros owns approximately 21.3% of Adecoagro's outstanding shares. Since its U.S. IPO roughly two years ago, the agricultural holding company has lost 25.5% of its value, but shares have been in the green since the start of 2013.

The crux of Adecoagro's bullish thesis lies in its exposure to one of the best asset classes out there for the long run: arable land. The company owns around 40 different farming properties throughout Argentina, Brazil and Uruguay. Though most investors are aware that farmland prices have been skyrocketing in the United States, Brazil, for example, has also seen the average value of its arable land increase by nearly fourfold over the past decade ( via Informa Economics FNP). Uruguayan and Argentinian farmlands have experienced a similar boom. 

Another benefit of Adecoagro's portfolio — which is most heavily concentrated in Argentina — is its crop diversity, which reduces its exposure to one commodity in particular, like corn or wheat. At a mere 14.9 times forward earnings, shares of Adecoagro are cheap at the moment, and the sell-side expects the company to finish 2013 with earnings of 63 cents a share — nearly twice its 2012 forecast. Ospraie Management's Dwight Anderson is also very bullish about this stock ( see Anderson's top picks ). 

Acacia Research Corporation ACTG -1.18% is the second-largest small-cap stock in Soros's portfolio, worth a little over 1.1% of his total 13F holdings. The company and its subsidiaries match patent owners and inventors to corporate partners. Acacia holds 250 different patent portfolios for use in medicine, media, IT and energy. Oil and gas production is the company's latest play as we head into the third week of 2013. 

Some bears may cry "troll," while others may believe that its business model is perfectly legitimate, but the fact is this: The number of patent portfolios under Acacia's banner has close to quadrupled over the past half-decade. The sell-side expects earnings growth of 38% annually through 2017. At a price-to-earnings growth multiple near 0.7, the markets are clearly undervaluing these prospects, and we'll be watching Acacia's presence in the energy industry closely. Famed "magic formula" man Joel Greenblatt was also quite bullish on this company in his last 13F filing ( see all of Joel Greenblatt's stock picks here ). 

Internet-based photo-publishing service Shutterfly SFLY +1.17% is George Soros's third-largest small-cap investment. The hedge fund manager owns about 8.4% of Shutterfly's outstanding shares, with short-sellers shorting another 21% of the company. Despite this abnormally high level of bearish investors, shares of Shutterfly have actually gained 9.2% since the start of the year on the back of an upgrade from Topeka Capital Markets and the acquisition of ThisLife, a cloud-based media storage provider. 

Topeka now holds a $40 price target on the stock, specifically citing the belief "that current competitors will continue to struggle to achieve sustained profitability." Generally speaking, Wall Street sees an upside of 15%-16% from these levels. At depressed book (1.9x) and sales (2.2x) multiples, Shutterfly offers investors value as well. 

Cheniere Energy LNG -0.30% , the liquefied-natural-gas company, sits at No. 38 in Soros's 13F portfolio, and is his next largest small-cap holding. Cheniere has been a beast since mid-November, gaining over 40% in value. As its ticker symbol suggests, the company is currently the U.S.'s only approved LNG export terminal. The Department of Energy's Federal Energy Regulatory Commission believes the site will have the capacity to ship 2.6 billion cubic feet of gas per day when export activity commences in late 2015. 

While it remains to be seen exactly how many of Cheniere's peers — like Dominion Resources (D), for example — will gain terminal approval, forward-looking investors can take solace in this exclusivity at the moment. 

Last, but certainly not least, rounding out our top five is U.S. Airways Group LCC -0.74% . U.S. Airways is closing in on a merger with American Airlines, which, if completed, should generate around $500 million in cost savings, and additional revenue close to twice this estimate. Up 9.5% in the New Year, investors are certainly cheery on the prospects of a deal being done, but it's worth noting that in isolation, LCC still trades at a measly 0.18 times sales. The iconic David Tepper and his fund, Appaloosa Management, are also bullish on U.S. Airways.

FISCAL CLIFF (What’s in Boehner’s “Plan B” – and what’s not)

What’s in Boehner’s “Plan B” – and what’s not

December 19, 2012, 11:30 AM

House Speaker John Boehner’s “Plan B” is Topic A in Washington as Republicans and the White House try to avert the fiscal cliff. And while it has almost no chance of clearing the Democratic-controlled Senate, passage in the House would allow the GOP to say Republicans acted to stop some tax increases. A vote — which the White House says President Obama would veto — is expected on Thursday.

Here’s a look at what’s in the bill, and what’s not.

The marquee element of the bill, which Boehner first unveiled on Tuesday, is its extension of Bush-era tax cuts for Americans making less than $1 million. That threshold was a concession by Boehner, who’d originally wanted tax increases on no one. But it’s much higher than President Obama’s $400,000 threshold (which was itself a concession for Obama).

Plan B also sets at 20% the tax rates for capital gains and dividends on income higher than $1 million — but keeps the current 15% rate for those making less than $1 million. Without a fiscal cliff agreement, rates on capital gains go up to a maximum of 23.8%. For dividends, rates go even higher, from 15% now to 43.4%. Click here for a Tax Foundation primer on the fiscal cliff.

Boehner’s bill would keep current rules on the estate tax, setting the exemption just north of $5 million with a top rate of 35%. That’s compared to 55% without a fiscal-cliff deal. Obama would set the estate tax at 45% with a $3.5 million exemption.

Plan B would also prevent the expansion of the alternative minimum tax, and extend some expensing for small businesses.

What it would NOT do is address the across-the-board spending cuts set to kick in next year for the Pentagon and domestic spending. Nor would it deal with the debt limit.

So while passage of Plan B would put Republicans on the record as opposing most tax increases (as if that were in doubt) it would only address half of the fiscal cliff. But Republicans could blame someone else for that.

Gold drops on stalemate in U.S. budget talks

Precious-Gold dropped on Tuesday trading on renewed worries regarding the so-called U.S. fiscal cliff as officials did not reach a solution yet, thereby threatening both U.S. and global recovery.

The shiny metal slipped for a third straight session to trade around $1704.66 an ounce, where it found support at $1701.66, which represents the Simple Moving Average (SMA) 100 level on the daily charts, after it fell from a high of $1717.35.

The trading range for today is expected among the key support at $1690.00 and the key resistance now at $1730.00.

Still, the main director of market sentiment is the U.S. fiscal cliff; it threatens the world`s biggest economy of falling back into recession if $607 billion of tax hikes and spending cuts start in January.

Yesterday, House of Republicans suggested a $2.2 trillion deficit-cutting plan, yet White House Communications Director Dan Pfeiffer replied that it “does not meet the test of balance.”

With the sluggish progress seen in U.S. budget talks the tensions are heightening and weigh on shares and commodities.

Gold is now moving with the U.S dollar as they both face downside pressure of the little progress in the budget negotiations.

The dollar index plummeted today to record a low of 79.80 after opening today`s trading at 79.89.

On the other hand, the euro is resuming its upside direction to six-week high versus the greenback after Greece said yesterday it would spend 10 billion euros to buy-back bonds via a modified Dutch auction.

Euro area finance ministers expressed their confidence that Greece will handle a successful bond buyback on Dec. 7, lifitng up expectations the debt crisis is abating.

Later in the day, European Union finance ministers will meet in Brussels to continue their pursuit to ease the three-year-old debt crisis.

Crude oil for January`s delivery inched down to $88.68 per barrel compared with the day`s opening level of $88.90.

Among other precious metals, silver retreated to $33.28 from the day`s opening of $33.32, platinum ticked down to $1592.75 from $1594.25, and palladium inched up to $678.60 from $678.40.

Gold and Silver Miners Show Strength as Futures Decline

On Tuesday, gold (NYSEARCA:GLD) futures for February delivery, the most active contract, dropped $25.30 to settle at $1,695.80 per ounce, while silver (NYSEARCA:SLV) fell 95 cents to close at $32.78.

Both precious metals declined as political rhetoric over the fiscal continues to dominate headlines. In an interview on Bloomberg Television, President Barack Obama said, “We have the potential of getting a deal done.”

 However, he also added, “We’re going to have to see the rates on the top 2 percent go up, and we’re not going to be able to get a deal without it.” The statement shows that both sides of the aisle still have some work to do before reaching an agreement.

Some analysts believe that a failure to prevent the fiscal cliff will send gold prices lower, as everything in the market will selloff in the short-term. However, long-term bullish trends like ultra-low interest rates still remain in place for precious metals. Australia’s central bank cut interest rates by 0.25 percent to 3.0 percent on Tuesday, matching the lowest level on record since 2009.

In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) fell about 1.0 percent, while the iShares Silver Trust (NYSEARCA:SLV) declined 2.0 percent. Gold miners (NYSEARCA:GDX) performed better, with Barrick Gold (NYSE:ABX) and Goldcorp (NYSE:GG) both jumping more than 1.0 percent. First Majestic Silver (NYSE:AG) and Silver Wheaton (NYSE:SLW) also climbed higher.