Billionaire John Paulson Loves Bank of America Corp (BAC). Why?

Page 1 of 2

Insider Monkey tracks quarterly 13f filings from hundreds of hedge funds, including billionaire John Paulson’s Paulson & Co, and the firm’s love of Bank of America Corp (NYSE:BAC). We’ve found in our work researching investment strategies that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and it can be useful to track hedge fund activity over time as well. For example, we can review a fund’s long term stock picks and treat these as initial ideas which investors may want to research further. Read on for our quick take on three stocks which Paulson owned at least $150 million of in his most recent 13F and at the end of March 2011 (or see the full list of Paulson’s stock picks over time).

PAULSON & COThe fund reported a position of over 37 million shares in MGM Resorts International (NYSE:MGM) at the end of the first quarter of 2013. The resort and casino company has rallied 68% over the last year, bringing it roughly back to its levels of two years ago. In its most recent quarter revenue ex promotional allowances rose 3% compared to the first quarter of 2012, and combined with cost cutting this was sufficient for MGM to report earnings of 1 cent per share.

This was good news for a company which had seen net losses in the previous three quarters, though certainly there’s a long way for MGM to go in order to justify its valuation: Wall Street analysts expect EPs of 13 cents next year, making for a forward earnings multiple of more than 100. Investors should be aware, if they are not already, that markets are generally assigning premium valuations to casino companies. In addition, many companies in the industry have a good deal of general market exposure as well as vulnerability to conditions in China. In MGM’s case, the beta is 2.4 and about a third of total segment EBITDA comes from operations in Macau.

Paulson has also been a long term owner of Mylan Inc. (NASDAQ:MYL), a $13 billion market cap developer of generic drugs and manufacturer of branded drugs. Mylan’s revenue has been up, according to recent reports, though higher research and development expenses have resulted in lower earnings on a GAAP basis (some analysts argue that in many cases investors should think of R&D as an investment rather than an expense). The sell-side is somewhat bullish, and so Mylan trades at only 10 times forward earnings estimates; however, many market players are more negative on the company and as a result 105 of the float is held short.

Bank of America Corp (NYSE:BAC) rounds out our list of Paulson’s long term stock picks with the most recent filing disclosing ownership of more than 27 million shares. Bank of America Corp (NYSE:BAC) had been one of the most popular stocks among hedge funds during Q1 (find more of hedge funds’ favorite stocks). Earnings have somewhat recovered from what had been low levels on a trailing basis; net income rose over 60% last quarter compared to the second quarter of 2012. Even with the stock price nearly doubling in the last year, it is still valued at a considerable discount to book with a P/B ratio of 0.7.

Analysts believe that Bank of America Corp (NYSE:BAC)’s earnings will continue to do well going forward, and so the P/E based on expected earnings for next year is 11. While somewhat low in absolute terms, this means that Bank of America Corp (NYSE:BAC) is actually priced at a premium in forward earnings terms to some other large banks including JPMorgan Chase and Citigroup. Despite its discount relative to book value, it might be best to compare the stock to its peers keeping in mind that megabanks in general may be vulnerable to less accommodative monetary policy from the Federal Reserve in the event the central bank does pursue tightening.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

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!