Here's What This 250% Gainer Is Buying

Every quarter, many fund managers have to disclose what they've bought and sold. Their latest moves can shine a bright light on smart stock picks.

Today let's look at investing giant John Paulson. Founded in 1994, Paulson & Co. has grown into one of the largest hedge fund companies in the world.

Is Paulson really worth paying attention to, though? Very much so. According to the folks at GuruFocus.com, Paulson gained about 250% in the first decade of this century, compared with just 16% for the S&P 500. That certainly gets my attention, although his 2011 performance was a big letdown.

Paulson's latest quarterly 13F filing shows that as of Dec. 31, 2011, his top holdings, making up roughly 30% of his portfolio, were the gold ETF SDPR Gold Shares, AngloGold Ashanti, and Delphi Automotive (NYSE: DLPH  ) . Overall, the portfolio was valued at $13.9 billion, with 84 holdings.

Interesting developments
So what else does Paulson's filing tell us? Here are a few interesting details:

His third-largest holding, Delphi Automotive, is also a brand-new one. The company emerged from bankruptcy protection not too long ago and is doing business in a different way now. It's using more foreign labor (thereby cutting costs) and looking to do more business in emerging markets (which offer the chance of faster growth).

Paulson upped his stake in gold miner NovaGold Resources (AMEX: NG  ) by 13%. The company has been selling off various assets recently in order to focus its operations more. It's also issuing more shares -- several hundred million dollars' worth -- which has some investors disappointed because of the dilution of existing shares. (The new shares are estimated to represent about 15% of existing shares.) Some are interested in NovaGold because they see it as a possible acquisition target.

A company Paulson sold out of entirely was major coal miner Alpha Natural Resources (NYSE: ANR  ) . Some might lose faith in the future of coal because of the low price of natural gas these days, but that can change, and in the developing world, coal is expected to remain in demand. Alpha is also a major metallurgical coal producer, and it will prosper as demand for steel grows.

Two stocks that Paulson reduced his stake in over the past quarter are InterDigital (Nasdaq: IDCC  ) and Transocean (NYSE: RIG  ) . Many people have been avoiding Transocean because of its uncertain fate regarding its involvement in the Gulf oil spill. It also posted very disappointing earnings in November, sending shares down sharply. (Of course, some see its lowered price as representing a bargain, especially considering its order backlog.) Meanwhile, wireless connectivity specialist InterDigital has disillusioned some investors with its not-too-strong investments in research and development and its interest in selling itself off. Other investors see it as undervalued, with rapid growth and fat profit margins.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.

Looking for promising investments? Check out our free special report -- "The Stocks Only the Smartest Investors Are Buying" -- and learn which stocks are appealing to Warren Buffett and other great investors.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter @SelenaMaranjian, holds no position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Transocean. Motley Fool newsletter services have recommended buying shares of InterDigital. 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.


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  • Report this Comment On February 21, 2012, at 2:06 PM, jonluxy wrote:

    Actually most longs liked the shareholder friendly consideration of the BOD to investigate whether or not selling the company in part or whole would result in a higher share price. The selling in whole did not result in strong enough interest however they continue to negotitate with 3 separate entities to sell non-core patents (each deal in the 100 to 200 million$ range and expected to close this year). OK and R&D? They are all about R&D and collaboration! All they do is add value to OEMS by taking on the risk of R&D spending and making it available to them at a cheaper cost usually on a pay as you go basis. They have the 3rd largest 4G patent portfolio next to Nokia and Ericsson and won about 9 % of the essential 4G patents. With something like 18000 patents in the wireless sector I can't assume they have not invested heavily in R&D. That's OK - Some people only held in hopes for a total buyout. They were disappointed but management never guaranteed a sale. The review process resulted in a great outcome. All the major OEMS are now familiar with IDCC's IP, and IDCC knows what each party is interested in. This intelligence will no doubt result in more streamlined negotiations for future patent sales, and license deals. I can be more selective than Mr. Paulson managing only my own account. FYI - My return is actually higher than his and only since 2006, and that is even with my current unrealized loss in IDCC - and guess what, I did not lighten up my position this year, but am holding for the long term. I have a price target of 70 for Jan 2013 wherein if met I will sell some of the position for a nice profit and continue to hold the rest, else continue to hold. I expect a triple digit price range emerging over the next 2 years due to expectations and demand for 4G LTE technology and the increasing need from providers to manage their resources and provide that bandwidth.

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