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, founder and president of Paulson & Co. Established 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's portfolio 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, though, in part due to his heavy position in gold -- 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. Paulson has reportedly said that a handful of his big funds are up by double digits several quarters into the year, with his Recovery and Enhanced funds up 38% and 26%, respectively.
The company's reportable stock portfolio totaled $15.5 billion in value as of Sept. 30, 2013.
Interesting developments
So what does Paulson's latest quarterly 13F filing tell us? Here are a few interesting details.
The biggest new holdings are Time Warner Cable and Mallinckrodt. Other new holdings of interest include FedEx (FDX -1.16%), which is up more than 60% over the past year and near a 52-week high, yielding 0.4%. The company was whacked by our recent recession, resulting in shrinking profit margins and, ultimately, a big turnaround plan involving cost-cutting, among other measures. The plan seems to be working well, as FedEx's last quarter featured estimate-topping revenue up 2% and earnings up 5.5%, also exceeding expectations. FedEx has announced plans to reward shareholders by buying back as much as about 10% of its shares.
Among holdings in which Paulson & Co. increased its stake were Kodiak Oil & Gas (NYSE: KOG) and Vodafone (VOD -1.10%). Kodiak Oil & Gas is one of the fastest-growing companies in shale drilling. Its recent quarterly earnings report disappointed some investors, but you can make a good case that they overreacted, given the 167% increase in revenue. Despite Kodiak Oil & Gas' hefty debt load, bulls like its focus on efficiency and see it having considerable promise.
Vodafone, headquartered in the U.K., yields a whopping 5.5%. Vodafone is collecting some $130 billion from Verizon for its 45% stake in Verizon Wireless, which will be used to reward shareholders, to beef up its wireless business, and to help fund its growth abroad. Meanwhile, there has been some talk of AT&T possibly buying Vodafone. Some have been concerned about Vodafone's free cash flow and see more compelling dividends elsewhere, but others see it as appealingly valued.
Paulson & Co. reduced its stake in lots of companies, including InterOil (NYSE: IOC). 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. It recently posted quarterly results that were somewhat disappointing, but investors still sent InterOil's shares up about 20% on news that it's getting close to some big deals, likely with ExxonMobil, and that its New Guinea operations are progressing as well.
Finally, Paulson's biggest closed positions included Smithfield Foods and Mead Johnson Nutrition. Other closed positions of interest include Ireland-based biotech company Elan (ELN), which collects royalties from the multiple-sclerosis drug Tysabri. Elan is being bought by Michigan-based drug company Perrigo. One benefit for Perrigo will be headquartering the new company in Ireland, which will cut its tax rate significantly. 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. The Perrigo purchase is expected to close by year-end.
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. 13F forms can be great places to find intriguing candidates for our portfolios.
