Billionaire John Paulson’s Latest Stock Picks for 2013 Include Sprint

Selling Delphi. Paulson reduced its stake in Delphi Automotive PLC (NYSE:DLPH) from about 25 million shares at the end of September to about 14 million shares in its most recent 13F. Delphi, a $13 billion market cap auto parts company which manufactures electrical, electronic, and powertrain components, had been the fund’s largest non-gold related position. The stock trades at 12 times trailing earnings as the market is generally wary of the auto industry and, therefore, of suppliers. Revenue was down slightly in the fourth quarter of 2012 versus a year earlier, and lower margins caused earnings to fall by over 50%. Billionaire Paul Singer’s Elliott Management has also been a major investor in Delphi (find Singer’s favorite stocks).

Merger arbitrage can be profitable, particularly if leverage is used, though risky as the stock will plunge if the deal falls apart; interested investors can do the math and see if buying Plains or Nexen is worth that risk for them. We can see the competitive case for Sprint winning market share, but at this point we think the stock is too speculative to recommend buying on value terms. While Delphi looks cheap, the same is true for peers and for automakers and some of those companies might be better buys.

Disclosure: I own no shares of any stocks mentioned in this article.