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Billionaire Paul Singer’s Top Stock Picks

ELLIOTT MANAGEMENTPaul Singer runs Elliott Management, a $19 billion hedge fund firm that focuses on opportunities in distressed debt investments; he founded the firm in 1977 with $1.3 million. Singer has a J.D. from Harvard Law School, after which he worked at a law firm for four years before jumping over to Donaldson, Lufkin & Jenrette. Elliott is known for dealing in distressed sovereign debt, notably some of Elliott’s distressed securities trading has been in sovereign debt of Argentina, Peru, and the Republic of Congo.

Here are Elliott’s top 10 holdings at the end of March:

Company Ticker Value ($000s) Activity
DELPHI AUTOMOTIVE PLC DLPH 1,323,343 0%
SPDR S & P 500 ETF TRUST Puts SPY 563,240 New
MEDCO HEALTH SOLUTIONS INC MHS 326,917 413%
POWERSHARES QQQ TRUST Puts QQQ 253,312 317%
BROCADE COMMUNICATIONS SYS INC BRCD 203,721 -19%
NEWS CORP NWS 182,585 New
IRON MOUNTAIN INC IRM 156,298 0%
ISHARES Long-Term Bond ETF Puts TLT 144,917 New
INGERSOLL RAND PLC IR 111,698 0%
ENERGY XXI LTD EXXI 89,561 3%

News Corp (NYSE:NWS) is a new equity name for Elliott Management. Last week News Corp announced it would acquire Walt Disney’s (NYSE:DIS) ESPN’s 50% stake in ESPN STAR sports (ESS). Terms were not disclosed but rumored price tags for DIS’s 50% stake hovers around $250M. Though we don’t expect ESS to start contributing to the bottom line immediately, we do view ESS as an asset with big potential upside. Currently ESS broadcasts to over 300 million viewers across 53 countries and generates estimated annual EBITDA in the ~$190 to $210 million range.

With the elections coming up, we think this should bode well for advertising revenue from political organizations. This will be temporary boosts, but earnings boosts nonetheless for Scripps Networks (SNI) and CBS (NYSE:CBS). Both should see a better-than-historical second half this year, particularly CBS since local broadcasting has been trending upwards. We have less confidence in Time Warner (TWX) after management reiterated low double-digit growth for 2012 EPS guidance. Ultimately, NWS is a FCF generation machine and sells at low multiples of it. We like the predictability of the cable content business where well over half of revenues are recurring, and we also like NWS’ major capital plan in place to return $5 billion a year over two years to shareholders. Value investors Seth Klarman and Boykin Curry also have large positions in News Corp (see Seth Klarman’s top value picks).

During the first quarter Paul Singer trimmed his General Motors (NYSE:GM) stake by 72%. GM is an interesting stock with mixed hedge fund interest. Billionaire David Einhorn is the largest stakeholder in the company among the 400 hedge funds we are tracking. Einhorn also trimmed his position by 22% during the first quarter. On the positive side billionaires Warren Buffett and David Tepper initiated brand new positions in the stock (see Warren Buffett’s new picks). We are long-term bullish about GM. The stock has depressed price multiples because of global economic slowdown expectations. Rival Ford (NYSE:F) has a 2012 forward PE ratio of 7 vs. GM’s 5.5. The business isn’t very bright in Europe this year but North American auto sales are quite strong. US Treasury still owns a sizable stake in GM and this creates an overhang. The global slowdown and the possibility of another recession don’t help these stocks either. However, we think a P/E ratio of 5.5 is too low even for a cyclical stock like GM and long-term buyers will probably see double digit annual returns over the next 5 years.

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