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Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today, let's look at investing giant John Paulson. Founded in 1994 and owned by its employees, Paulson & Co. has specialized in merger arbitrage, among other things, profiting when one company buys or merges with another (or merely announces plans to do so). It 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 263% over the past 15 full years, compared with just 124% for the S&P 500. He more than doubled the market's return over the past five and 10 years, as well. That certainly gets my attention.
The company's reportable stock portfolio totaled $12.7 billion in value as of September 30, 2012. Its biggest holding by far is the SPDR Gold Trust (NYSEMKT: GLD ) , with about 30% of assets. Gold has long had its advocates and critics (who include Warren Buffett), but, as my colleague Dan Caplinger has noted, it all comes down to supply and demand.
So what does Paulson's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Metro PCS Communications (NASDAQ: TMUS ) and Nexen (UNKNOWN: NXY.DL ) . Another new holding is Jazz Pharmaceuticals (NASDAQ: JAZZ ) , which has been tackling narcolepsy and leukemia, among other things. Its narcolepsy drug Xylem, recently hitting a record $103 million in quarterly sales, has little in the way of competition, giving the company pricing power. Jazz has made some smart acquisitions, too, and is selling off its women's health business.
Among holdings in which Paulson increased its stake was big data center operator company Equinix (NASDAQ: EQIX ) .The company's earnings more than doubled over the past year, and revenue has been growing by about 30% or more annually, over the past few years. The stock has surged close to 80% over the past year, partly on news that it's looking into converting into a real estate investment trust (REIT), which will be required to pay out most of its earnings as dividends. Others, though, worry that it's free-cash-flow negative, and that the stock is overvalued.
Paulson reduced its stake in lots of companies, including American Capital (NASDAQ: ACAS ) and InterDigital (NASDAQ: IDCC ) . Private equity and venture capital specialist American Capital has been busy selling off some businesses, buying back shares, and paying down debt. The company suspended its dividend payments back in 2008 and has yet to resume them, though management has said it would like to do so. My colleague John Maxfield, though, warns that the company may be too inscrutable for most investors.
InterDigital (NASDAQ: IDCC ) shares are down about 20% over the past year, with some disappointed that the company was not acquired. Some are skeptical of its patent-oriented business model, but there may be several billion dollars of value there. The company sold 1,700 of its 3G and 4G LTE wireless patents to Intel (NASDAQ: INTC ) for $375 million. It has planned to sell off patents, and won a case against Nokia (NYSE: NOK ) . Revenue and free cash flow recently ticked up sharply, but so did debt. Management recently waxed bullish about its near-term revenue growth.
Finally, Paulson's biggest closed positions included Goodrich (UNKNOWN: GR.DL ) . Paulson also sold out of health-care products specialist Covidien (UNKNOWN: COV.DL ) . Covidien recently posted estimate-beating fourth-quarter results, though revenue was down 3% and gross margins shrunk, as well. The CEO noted promise in emerging markets and added:
We made significant progress reshaping our portfolio in 2012. We announced the spinoff of the pharmaceuticals business, while adding more than $4 billion in new market opportunities through acquisitions that offer excellent growth prospects.
A possible downside for the company is the entry of Intuitive Surgical (NASDAQ: ISRG ) into its surgical stapler business.
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. Therefore, 13-F forms can be great places to find intriguing candidates for our portfolios.
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