In this article we presented billionaire John Paulson’s top 10 stock picks. You can skip our analysis of Paulson’s investment strategy and his returns to go directly to Billionaire John Paulson’s Top 5 Stock Picks.
John Alfred Paulson is an American billionaire and hedge fund manager who founded Paulson & Co. in 1994. As of the end of 2020, the fund had roughly $3.8 billion in managed securities. Last year, Paulson announced to close his hedge fund for outside money and covert Paulson & Co. into a family office. The 65-year-old billionaire whose worth stands at $3.5 billion said in his letter to shareholders that it was “thoroughly rewarding” for him to run the asset management firm for 26 long years.
“Recent volatility notwithstanding, I am proud of our long-term returns,” Paulson reportedly said.
John Paulson’s Investment Philosophy and His Hedge Fund’s Returns
Paulson was born to immigrant parents and was raised in Queens, New York. After graduating with a finance degree from New York University’s College of Business and Public Administration, he got admission into Harvard Business School and received an MBA in 1980.
After working at Boston Consulting Group, Odyssey Partners and Bear Stearns, Paulson founded his hedge fund Paulson & Co. in 1994 with $2 million and one employee — Paolo Pellegrini, who played a key role in Paulson’s strategy to profit from the housing bubble.
Paulson’s ‘Greatest Trade Ever:’ Shorting the Housing Market
Paulson quickly rose to fame after he made a whopping $4 billion for himself and $15 billion for his fund by shorting the housing market during the 2008 subprime mortgage crisis. Like famous investor Dr. Michael Burry, Paulson used credit default swaps to short the housing bubble. WSJ’s Gregory Zuckerman wrote about how Paulson executed his legendary strategy and made billions in his book titled “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History.”
But Paulson’s hedge fund was not totally insulated from the turmoil in the hedge fund industry. As of June 2020, when Paulson closed his fund for investors, Paulson & Co. was down 10% for the year. By November 2018, Paulson’s fund had just $9 billion in assets, down sharply from $38 billion in 2011. He is not alone. The hedge fund industry is losing ground amid severe losses. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
In an interview with StateAlpha Capital, Paulson talked about some of his investing techniques.
“We’ve been involved in merger arbitrage for the last 20 years. We built up a core expertise in this area and we have people that are dedicated to the space. We monitor every announced deal globally. Our approach is, there’s five key ways that we seek to profit in this area. One is by traditional merger arbitrage, which was capturing spreads earlier this year. They were rather tight but they’ve opened up quite a bit, so in deals like Time Warner Comcast, they’re trading around nine to ten percent… The second area of where you can do well is hostile takeovers. Hostile is different categories when an offer’s made, but the outcome is uncertain, and the target will try and fight the offer, and those situations, you could lose money. They’re risky… The last category that’s very important to us now is what you were referred to in strategic acquires. There have been many very successful acquires where they’ve bought companies and they’ve grown their earnings very rapidly, and the stock has appreciated tremendously. Probably the best example of that would be, Valeant, which was a small company that Mike Pearson took over a CEO. Over that period of four years, they made 35 acquisitions. It has grown earnings per share by about 600% and its stock up 800%. That’s probably the poster child of a creative acquire. So we try and identify those acquirers that can deliver a substantial value.
Let’s start our list of John Paulson’s top 10 stock picks.
10. Endo International plc (NASDAQ: ENDP)
Percent of John Paulson’s 13F Portfolio: 3.41%
Number of Hedge Fund Holders: 13
Massachusetts-based Endo International is a pharmaceutical company that makes tablets, capsules, powders, nasal sprays and ophthalmics. The company’s brands and products include Lidoderm, XIAFLEX , OPANA ER, Voltaren Gel, Percocet, Fortesta Gel, Testim, TESTOPEL and Aveed. The company on March 12 priced $1.3 billion principal amount of 6.125% senior secured notes due 2029 at an issue price of $1,000 per $1,000 principal amount in connection with its earlier announced private offering.
According to our database, the number of ENDP’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 13 hedge funds that hold a position in Endo International compared to 17 funds in the third quarter. The biggest stakeholder of the company is Jim Simons’ Renaissance Technologies, with 19.6 million shares, worth $140.7 million.
9. AngloGold Ashanti Limited (NYSE: AU)
Percent of John Paulson’s 13F Portfolio: 3.5%
Number of Hedge Fund Holders: 17
Anglogold Ashanti Ltd. ranks 9th on the list of billionaire John Paulson’s top 10 stock picks. The gold mining company was formed as a result of the merger between AngloGold and the Ashanti Goldfields Corporation. In February, the company announced a five-fold increase in its dividend as compared to the dividend paid in 2019 as its 2020 profit more than doubled. The stock is up 45% over the last 12 months.
With a $135.1 million stake in AngloGold Ashanti, Paulson & Co owns 5.97 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 17 hedge funds held stakes in AngloGold as of the end of the fourth quarter.
8. Discovery, Inc. (NASDAQ: DISCA)
Percent of John Paulson’s 13F Portfolio: 4.69%
Number of Hedge Fund Holders: 28
Media company Discovery ranks 8th on the list of billionaire John Paulson’s top picks. The company is famous for its Discovery Channel, Animal Planet and Science Channel. The company expanded its portfolio in 2018 by acquiring Scripps Networks Interactive and now owns Food Network, HGTV and Travel Channel. The stock has gained about 250% over the last 12 months. However, Macquarie recently cut the stock rating, citing valuation concerns. The firm set a price target of $52 for Discovery shares.
Hudson Bay Capital Management is one of the 28 hedge funds tracked by Insider Monkey having stakes in DISCA at the end of the fourth quarter. The fund owns over 4.6 million shares of the company.
“We parted with Discovery Communications in the fourth quarter. We were originally attracted to its loyal fan base, high cash flows, and cheap stock. While Discovery retains those attributes, we’ve become less optimistic that Discovery will find a home in the new media ecosystem as lucrative as its old one. As people cut the cable cord, they are re-bundling content from various providers like Netflix and Disney, but media companies without enough “must have” content risk being left behind. Discovery recently launched its own streaming service, discovery+, but people only want to subscribe to so many services. By last quarter, it was only a 2% position, but it was still a drag on our returns. We recognized a loss of 36.6% on the investment, -9.3% on an annualized basis.”
7. Takeda Pharmaceutical Company Limited (NYSE: TAK)
Percent of John Paulson’s 13F Portfolio: 5.33%
Number of Hedge Fund Holders: 18
Billionaire John Paulson’s hedge fund’s portfolio includes Takeda Pharmaceutical as it has a $205.6 million stake in the company. The Japan-based company is one of the major pharmaceutical giants in Asia, with its product used to treating disorders involving metabolism, neurology, oncology and inflammation. Earlier in March, the company said it expects about $9 billion in revenue from emerging markets by 2030. The company recently entered into an agreement with IDT Biologika to support the manufacturing and delivery of Johnson & Johnson’s (NYSE: JNJ) single-shot COVID-19 vaccine.
A total of 18 hedge funds tracked by Insider Monkey were bullish TAK at the end of the fourth quarter, down from 19 funds a quarter earlier.
6. NovaGold Resources Inc. (NYSE: NG)
Percent of John Paulson’s 13F Portfolio: 5.57%
Number of Hedge Fund Holders: 18
NovaGold Resources ranks 6th on the list of billionaire John Paulson’s top 10 stock picks and portfolio. The company has major gold mining operations in North America. Its shares are up 25% over the last 12 months but lost 14% in value over the last 3 months. In November 2020, Saudi Arabia’s sovereign wealth fund the Public Investment Fund bought a stake in NovaGold Resources.
As of the end of the fourth quarter, 18 hedge funds in Insider Monkey’s database of 887 funds held stakes in NovaGold, compared to 19 funds in the third quarter. Paulson & Co is the biggest stakeholder in the company, with 22.2 million shares, worth $214.9 million.
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Disclosure: None. Billionaire John Paulson’s Top 10 Stock Picks is originally published on Insider Monkey.