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? Well, according to the folks at GuruFocus.com, Paulson gained about 264% over the 15 years through 2011, compared with just 124% for the S&P 500. That certainly gets my attention. His performance faltered in 2011 and 2012, though, reminding us that even the big guys are not perfect and that we should think twice before mindlessly following anyone.
The company's reportable stock portfolio totaled $17.7 billion in value as of March 31, 2013. Its biggest holding by far is the SPDR Gold Trust, with about 19% 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 Family Dollar and Hess. Other new holdings of interest include InterOil (NYSE:IOC) and MGIC Investment (NYSE:MTG). InterOil has many investors excited about its potential, as it has major natural gas holdings in Papua New Guinea that could serve regions in Asia. Its earnings have been paltry or negative in recent years, though, and it's free cash flow negative as well. It looks overvalued to some but undervalued to others, and patience seems to be required.
Mortgage insurer MGIC is poised to profit from the recovering housing market, and it has been cleaning up its balance sheet over the past few years, though some don't see it as sufficiently impressive yet. The company is also looking to significantly hike its number of shares, thus shrinking the value of existing shareholders' holdings.
Among holdings in which Paulson & Co. increased its stake was Genworth Financial (NYSE:GNW). Genworth has surged some 20% since my colleague Robert Eberhard called it cheap back in March, but it still sports a forward P/E ratio near 7.3, well below its five-year average. It recently reported quarterly net income more than doubling, and has been making itself more attractive, in part by selling off its wealth management business. It's also working on raising its rates for its long-term care insurance, as that has become quite costly (causing some rivals to simply exit the business) – and its well positioned to profit from a rebound in housing.
Paulson & Co. reduced its stake in lots of companies, including coal producer Alpha Natural Resources (NASDAQOTH:ANRZQ). The company, like others in its industry, has been whacked by low natural gas prices that have left coal looking relatively unattractive to utility companies, shareholders, and others. The company has been adapting by cutting costs and focusing more on metallurgical coal, which is used to make steel. Its last earnings report was better than expected.
Finally, Paulson's biggest closed positions included Nexen and Ralcorp Holdings. Other closed positions of interest include Murphy Oil (NYSE:MUR), which has surged nearly 50% over the past year and which will split itself in two later this year, separating the downstream refining and retailing business from the rest of the company. In its last quarter, the company's revenue slipped a bit, missing expectations, but its earnings exceeded them, rising 26% over year-ago levels. Management pointed to particular production success in the Eagle Ford shale region.
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.