Will These Value Picks Save Billionaire John Paulson?

Page 2 of 2

HCA Holdings Inc (NYSE:HCA), a $15 billion market cap hospital company, was another of Paulson’s favorite stocks. HCA trades at 9 times forward earnings estimates, even though its revenue was 11% higher in the third quarter versus a year earlier (earnings were abnormally high). Many other hospital stocks also look low priced, possibly in part because of uncertainty as to how new healthcare policies will affect the industry (HCA popped about 10% on the day that President Obama’s healthcare plan was ruled constitutional, suggesting that it is very sensitive to the specifics of how the plan will be implemented).

Paulson also liked CNO Financial Group Inc (NYSE:CNO), with the fund owning 22.5 million shares of the stock at the end of September. CNO is a health and life insurance company, and it is priced at quite a discount to book value at a P/B ratio of 0.4. The trailing P/E multiple is 11, and revenue has been up. It’s also a popular short candidate, but the stock looks like a good enough value that it’s worth further investigation.

The fund sold shares of Capital One Financial Corp. (NYSE:COF) but still owned 2.2 million shares according to the 13F. Capital One is another financial stock selling at a discount to the book value of its equity- the P/B ratio here is 0.9- and at fairly reasonable earnings multiples as well as the company has in fact been able to monetize these assets. Its revenue and earnings have been doing well, though the company needs only limited growth to justify a trailing P/E of 10.

Page 2 of 2