John Paulson of Paulson & Co. became famous- and a billionaire- for his short of subprime mortgage related investments at the peak of the housing bubble, and followed it up with a good return on gold. However, his performance in the last two years has been remarkably poor. We decided to look at some of his recent value stock picks to see if they are good investments that could help him get back on track, as well as to see if they make sense for other investors’ portfolios. Here are the five largest holdings by market value in Paulson’s 13F portfolio for the third quarter of the year (see the full list of Paulson’s stock picks) with trailing and forward P/E multiples of 13 or lower:
Even after cutting 22% of its stake, Paulson owned 25 million shares of Delphi Automotive PLC (NYSE:DLPH), making it the third largest holding in the fund’s portfolio behind a gold miner and the GLD ETF. Delphi is an auto parts company whose products include electrical, electronic, and powertrain components. It trades at 9 times trailing earnings, and Wall Street analysts predict strong growth for the company: its forward P/E is 8 and its five-year PEG ratio is only 0.5. Fellow billionaire Paul Singer’s Elliott Management owed 28.5 million shares of Delphi at the end of the third quarter (check out Singer’s stock picks), though like Paulson Elliott had been selling shares. We think that it looks cheap, though other auto related companies might be even better buys.
Wireless phone provider MetroPCS Communications Inc (NYSE:PCS) was another cheap Paulson pick at 13 times consensus earnings for 2013. The fund initiated a position of about 24 million shares between July and September. York Capital Management, which is managed by billionaire James Dinan, also bought shares of MetroPCS during the quarter (find more stocks Dinan likes). MetroPCS’s net income was up strongly last quarter, but revenue growth was much more modest. In addition, 10% of the outstanding shares are held short and we think that we would avoid the stock.