Paulson & Co., the hedge fund which notoriously nailed the popping of the housing bubble during the financial crisis (making its founder, John Paulson, a billionaire due to high returns on its short positions) and which has notoriously underperformed the past couple years, has filed its 13F for the first quarter of 2013 with the SEC. We maintain a database of quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds beat the S&P 500 by an average of 18 percentage points per year). This database also allows us to compare filings from individual over managers over time and try to get an idea of what they are thinking. Here are three trades that Paulson (see Paulson’s picks over time) was making between January and March:
Sprint. Sprint Nextel Corporation (NYSE:S) had been one of the fund’s largest holdings by market value at the beginning of the year, but that wasn’t enough for Paulson: he bought over 100 million shares of the telecom company last quarter and owned about 230 million shares at the beginning of April. Currently Sprint Nextel Corporation (NYSE:S) is trading above a proposed takeover price from SoftBank, though DISH Network Corp (NASDAQ:DISH), another potential acquirer, recently issued debt in order to give it enough cash to fully pursue the transaction and might outbid SoftBank. Paulson actually got his start in merger arbitrage before moving into macro when his investment team got the idea to short subprime mortgages. Generally, acquisition targets trade just below the takeover price, resulting in an arbitrage opportunity. While returns are low in absolute terms, they can be attractive on an annualized basis and are generally uncorrelated with the market.
Selling Mylan. According to the 13F, Paulson reduced his stake in Mylan Inc. (NASDAQ:MYL), a $12 billion market cap manufacturer of generic and specialized pharmaceuticals, to about 18 million shares from about 25 million three months earlier. At current prices, Mylan Inc. (NASDAQ:MYL) trades at 21 times its trailing earnings, though Wall Street analysts are projecting high growth in earnings per share over the next couple years and as a result the forward P/E is only 10. However, the company actually reported a 17% decline in earnings last quarter compared to the first quarter of 2012, with revenue being up but only slightly so. Billionaire David Shaw’s D.E. Shaw had sold 63% of its shares of Mylan Inc. (NASDAQ:MYL) during the fourth quarter of 2012 (find D.E. Shaw’s favorite stocks).