In May, billionaire John Paulson’s hedge fund Paulson & Co. filed its 13F with the SEC, disclosing many of its long equity positions as of the end of March. Even though the information in 13Fs is a bit old, there are still a couple ways for investors to potentially profit from it. For one, we’ve found that it’s possible to develop investment strategies based on 13F data; for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). We can also compare the most recent filing to the previous one to see which stocks funds added to their portfolio during the quarter. Read on for our thoughts on Paulson’s five largest new holdings as of the end of March and see a history of his stock picks.
The fund initiated a position of 5 million shares in Family Dollar Stores, Inc. (NYSE:FDO) in the first quarter of 2013. Net margins fell in Family Dollar Stores, Inc. (NYSE:FDO)’s most recent quarterly report compared to the same period in the previous fiscal year: while revenue grew at a double-digit rate, earnings were up only 3%. That’s fairly concerning given that the trailing earnings multiple of 17 would be taken to already include considerable earnings growth in the future. Trian Partners, managed by billionaire Nelson Peltz, kept its stake constant during Q1 at a little under 9 million shares (find Peltz’s favorite stocks).
Paulson bought 2.7 million shares of Hess Corp. (NYSE:HES) between January and March. The $23 billion market cap oil and gas company has begun plans to spin out its refining and marketing operations, possibly pushed into doing so by activism from billionaire Paul Singer’s Elliott Management. In theory, spinouts can be good for a parent company since it allows management to better focus on the core assets of the business. Hess Corp. (NYSE:HES)’s valuation means that it currently trades at 12 times forward earnings estimates, which we’d note does represent a premium to where many oil majors are valued.