John Paulson is the president and founder of Paulson & Co, a New York-based hedge fund which dates back to 1994 and which has over $18 billion in assets under management. As of March 31, the top two sectors in which the fund allocated its assets were healthcare at over 34%, and the services sector at nearly 29%. Paulson is no stranger to great acclaim as a money manager, being hailed by Trader magazine as the best trader in the world in 2008. Wall Street knows him as one of the men who predicted the sub-prime collapse, which returned to one his flagship funds, The Paulson Credit, unbelievable 590% gains during the crisis year. Moreover, his prediction about the gold price increase and the bailout of “two-big-to-fail” banks also turned profitable: Paulson made a record-breaking $5 billion during a single day. So, let’s take a closer look at the new picks of the “best trader”, which include American International Group Inc (NYSE:AIG), Computer Sciences Corporation (NYSE:CSC), Cyberonics Inc (NASDAQ:CYBX), and Outfront Media Inc (NYSE:OUT), and see what they are made of.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of Paulson & Co can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 84 percentage points and returning over 142%, while hedge funds themselves have collectively underperformed the market (read the details here).
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On the financial front, Paulson & Co added a new position of 14.60 million shares of American International Group Inc (NYSE:AIG), valued at $800.11 million to its equity portfolio. During 2015, the stock of the $84.32 billion insurance company has already appreciated by 12.37%. Even though American International Group Inc (NYSE:AIG) was among a few big players who were severely hurt during the sub-prime collapse, these days the company strives to improve its balance sheet though deleveraging, and its financial performance through operating margins. Among the other prominent investors that we follow, Bruce Berkowitz’ Fairholme (Fairx) held about 23.86 million shares of AIG, which were valued at $1.31 billion at the end of the first quarter.
The next on the list is Computer Sciences Corporation (NYSE:CSC), in which Paulson & Co opened a position valued at $272.87 million, represented by 4.18 million shares. The $9.22 billion information services company recently announced its split into two separate companies, one of which will concentrate on commercial clients and the other one on government contracts. During the past year, the stock has traded sideways, though it is greater than 5% in the green in 2015. Barry Rosenstein’s JANA Partners added a significant 172% to its previously held stake in Computer Sciences Corporation (NYSE:CSC). Rosenstein now owns 7.47 million shares in total, valued at $457.50 million.
Paulson acquired some 1.72 million shares of Cyberonics Inc (NASDAQ:CYBX), valued at $111.91 million during the first quarter. The stake represented 0.56% of the value of the fund’s public equity portfolio. Cyberonics Inc (NASDAQ:CYBX) is engaged in the production of implantable medical devices. On a year-to-date basis, the company has returned around 10.11%, though it could have performed much better: the share price has dipped by 18% from its yearly high, after news of its merger with Sorin SPA Milano (OTCMKTS:SORJF) first became public. The merged entity will be called LivaNova, with the merger expected to be completed by the end of the third quarter. As for Cyberonics’ first quarter results, the company missed the top line expectations by 4.31%, reporting $74.1 million of revenues, and beat the bottom lime estimates by $0.01, closing the period with $0.64 in EPS. Jim Simons‘ Renaissance Technologies reported having around 2.10 million shares of the company, valued at $134.07 million after the first three months of the year.
Lastly, Paulson & Co initiated a position in Outfront Media Inc (NYSE:OUT), obtaining 3.31 million shares over the first quarter, valued at $98.96 million as of the end of it. The company is a relatively young participant on the markets, since it went public only in April of 2014. Since then, the stock of the US leader in billboard advertising has depreciated by 10.31%. However, the mean analysts’ expectations suggest 19.01% upward potential from current levels. The reason for that lies in anticipation of favorable EPS figures in the near future. Eminence Capital, managed by Ricky Sandler, heads the list of other investors who made bets on Outfront Media Inc (NYSE:OUT), holding about 3.16 million shares with a total value of $94.53 million. Over the first quarter, Mr. Sandler decided to cut his ownership in this company by 19% however.
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