AMC Networks Inc (AMCX), NovaGold Resources Inc. (NG): Some Picks From Billionaire John Paulson You Should Consider

Page 1 of 2

PAULSON & COIn the world of small-cap companies, most don’t get as much attention in the media or the blogosphere, which often leaves them less efficiently priced than their larger peers. As one can expect, hedge funds take advantage of this phenomenon by dedicating their research teams to work on these stocks, generating a significant portion of their alpha in the process.

Retail investors can use hedge funds’ top small-cap picks as a market-beating strategy; we’ve determined that the most popular small-caps among hedge funds can earn about 120 basis points of alpha per month (check out the details here).

With this in mind, we’re going to take a look at one fund in particular: John Paulson’s Paulson & Co. Paulson has a mammoth of an equity portfolio—about $12.7 billion in size—but let’s focus on the fund manager’s five favorite small-cap picks (see all of Paulson & Co’s stock picks). As is consistent with our strategy, each stock listed here had a market capitalization between $1 billion and $5 billion at the end of the third quarter.

At first glance, John Paulson would appear to be one hedge fund manager that retail investors should avoid. After all, he has gained quite the reputation over the past two years for returns that have his clients red in the face, that’s no argument. It’s crucial to point out, though, that these issues are predominantly the result of his large investments in mega-cap stocks, in addition to his macro views. Like David Einhorn (see Einhorn’s Huge Secret), Paulson’s smaller positions have performed very well historically, proving that it’s profitable to mimic these picks.

According to his latest 13F filing with the SEC, MetroPCS Communications Inc (NYSE:PCS) is John Paulson’s top small-cap holding, sitting at the No. 10 spot in his overall portfolio. MetroPCS is up over 47% in the past six months, and at first glance, these gains appear to have come from positive sentiment surrounding the company’s announced merger with T-Mobile USA. Since news of this deal broke on October 3rd of last year, however, shares of MetroPCS have actually lost 28.3%.

The deal, which is expected to close in the first half of this year, will gradually transfer customers from MetroPCS to T-Mobile, with the former’s network set for complete shutdown by 2015. The company is coming off of two consecutive colossal earnings beats, and reports its Q4 FY2012 financials at the end of next month.

At a PEG below 0.5 and 13 times year-ahead EPS, shares of MetroPCS are undoubtedly cheap, but with rumors of a bidding war between T-Mobile and Sprint still fresh, it’s possible some investors are uncertain what the future will hold. Still, at these levels, it’s hard not to mimic Paulson’s bullishness. Billionaires Steve Cohen and James Dinan are among the hedge fund managers who are bullish on PCS (see Steve Cohen’s stock picks).

AMC Networks Inc (NASDAQ:AMCX), the broadcasting and cable TV company, is Paulson’s second favorite small-cap, and is also a top pick of Christian Leone’s Luxor Capital. AMC Networks’ best asset is its original programming, which has generated double-digit viewership growth for shows like Breaking Bad and the Walking Dead, and the company is coming off a Q3 earnings beat more than 25% above Wall Street’s estimates.

How is the stock valued?

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!