GRFS, PCS, NXY, SHPG, AGP: Billionaire John Paulson’s New Stock Picks

PAULSON & COIt’s been a tough few years for John Paulson’s Paulson & Co. After remarkable success shorting the housing bubble and, later, going long gold, his fund has struggled and is well down from its high water mark. Paulson is still a billionaire, however, and frequently followed by market watchers. His fund filed its 13F with the SEC in mid November, and we have compared it with previous filings to identify stocks that Paulson initiated a position in during the third quarter of 2012. Read on for our quick take on Paulson’s five largest new stock positions or see the full list of stocks in his 13F portfolio.

Spanish pharmaceutical company Grifols SA, Barcelona (NASDAQ:GRFS) was Paulson’s largest new holding according to the 13F, with the fund reporting a position of more than 16 million shares. Grifols has more than doubled in price in the last year, and its earnings have been up substantially. Investors believe that there is more growth ahead and so they have bid the stock up to a valuation of 60 times the company’s trailing earnings. We’re not familiar with the company’s products, and we’d note that the earnings multiple is quite high, so it would be a low-priority research target for us.

Paulson also initiated a position in MetroPCS Communications Inc (NYSE:PCS), the $3.8 billion market cap wireless phone company. MetroPCS, like Grifols, reported a large increase in net income in its most recent quarter compared to the same period in the previous year, though revenue was up only slightly. Sell-side analysts expect a bit of a correction in the company’s business next year, with the forward P/E multiple of 13 being above where the stock trades on a trailing basis, but their estimates look more rosy over the long term. This places it a bit cheaper than competitors like Verizon, though it’s certainly a much smaller company. James Dinan’s York Capital Management also added MetroPCS to its portfolio during the third quarter (find more stock picks from York Capital Management).

Potential takeover target Nexen Inc. (NYSE:NXY) was another new stock pick. The Canadian government continues to review Chinese oil company CNOOC’s bid for Nexen, which is notable for its presence in the Alberta tar sands. The deal is controversial in Canada, and as a result it’s not certain that it will be approved. A number of hedge funds got into the stock during the third quarter; merger arbitrage is a common hedge fund strategy as the returns from investing in merger targets tend to be uncorrelated with the broader market (read more about why hedge funds invest in merger arbitrage strategies).

The fund bought 1.4 million shares of Shire PLC (NASDAQ:SHPG) between the beginning of July and the end of September. Shire is a $16 billion market cap pharmaceutical company headquartered in Ireland. It’s a bit more mature in its development cycle than Grifols and so its earnings multiples are in the teens, indicating that it might be more of a value play as long as it can continue to grow its earnings (in the third quarter, net income was 18% higher than in the same period in 2011). Given the stock’s pricing, we’re a bit more interested here and might look at the company in more depth and compare it to larger pharmaceutical companies.

Paulson liked AMERIGROUP Corporation (NYSE:AGP), initiating a position of 1 million shares. Amerigroup serves recipients of government programs such as Medicaid and CHIP. Possibly because these operations are seen as less risky, it carries considerably higher multiples than tends to be the case among health insurers and health care providers. For example, it trades at 19 times forward earnings estimates while leading health insurer UnitedHealth has a forward P/E of 9 and hospital HCA is valued at 8 times consensus earnings for 2013. As a result we’d probably be more interested in considering an investment in those companies, rather than take on the heavy premium attached to Amerigroup.

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

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

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!