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, wherein, among other things, it profits 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 has faltered in recent years, however, in part due to his heavy position in gold. (That's a good reminder 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 $14.2 billion in value as of June 30, 2013. Its biggest holding in the previous quarter was the SPDR Gold Trust, with about 19% of assets. That dropped to second place and 8.6% in this past quarter, with shares of Sprint Nextel taking the top spot. 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 Thermo Fisher Scientific and T-Mobile US. Other new holdings of interest include Kodiak Oil & Gas (UNKNOWN:KOG.DL) and Elan (UNKNOWN:ELN.DL2). Kodiak recently bought 42,000 acres in the productive Bakken region, upping its assets there by 27% and adding thousands of new barrels of oil to its production levels. The company offers rapid growth (to the tune of triple-digit revenue growth rates) and seems to have more room to grow, with its forward P/E near 10. Bears worry that it might be too focused on the Bakken and not sufficiently diversified. It's also increasing its share count, and has significant debt, which is likely to grow more as Kodiak continues investing heavily.
Ireland-based biotech company Elan is being bought by Michigan-based drug company Perrigo for $8.6 billion. One benefit for Perrigo will be headquartering the new company in Ireland, which will cut its tax rate from around 30% to around 17%. Elan had previously been pursued by Royalty Pharma, whose offers had been deemed too low. It has also been in the news as a stock that investors at the scandal-ridden hedge fund SAC Capital allegedly traded in with insider information.
Among holdings in which Paulson & Co. increased its stake were Freeport McMoRan Copper & Gold (NYSE:FCX) and oil and gas explorer Cobalt International Energy (NYSE:CIE). Freeport McMoRan Copper & Gold, the world's largest publicly traded copper producer, has been whacked by falling copper and gold prices, though its second quarter was solid, featuring estimate-topping earnings (and revenue a bit below expectations), along with vital cost cuts. Helping the performance considerably is its newly purchased pair of oil- and gas-producing companies. The company has been abandoned by many lately, but others see it as rather undervalued. Patient investors can collect a dividend yield near 4%.
Cobalt has seen its stock roughly triple over the past two years, in part due to oil discoveries in the Gulf of Mexico. The company has its doubters, though, with more than 5% of its float shorted as of late July. They probably don't like the company's sizable cash burn and net losses over the past few years, along with its debt. Its last quarter featured narrowing losses with a drop in costs and its CEO waxing bullish: "... our catalytic exploration well program continues to progress as planned. Never in the history of Cobalt have we been in a position to deliver more results in such a short period of time."
Paulson & Co. reduced its stake in lots of companies, including Hartford Financial Services (NYSE:HIG). Hartford has been shifting its focus from annuities, retirement planning, and life insurance toward property and casualty insurance. It has been tackling its significant debt, and while its second quarter showed widening net losses, it also featured an 18% gain in core earnings and management expressing confidence via a 50% dividend hike. The Hartford has faced asbestos-related liabilities and sold a U.K. annuity business to Warren Buffett's Berkshire Hathaway. Hartford stock has been volatile, but some see it as undervalued now, with a forward P/E ratio of just 9and a dividend yield around 1.9%.
Finally, Paulson's biggest closed positions included Plains Exploration and Production and MetroPCS Communications. Plains was bought by Freeport McMoRan Copper & Gold, and MetroPCS merged with T-Mobile US.
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.