Billionaire John Paulson’s Top 10 Stock Picks

In this article, we presented billionaire John Paulson’s top 10 stock picks.

The investing guru billionaire John Paulson, who converted his hedge fund into a family office in 2020, has benefited from its bullish bets on gold and healthcare stocks in 2020 after seeing lackluster returns in the past few years. The founder of New York-based hedge fund Paulson & Co is famous for making $20 billion in profits for betting against the financial collapse in 2008. Although Paulson gained roughly $5 billion in 2010 on a bet on gold, its strategy of investing billions of dollars into gold markets negatively impacted its portfolio in the last decade.

John Paulson founded Paulson & Co in 1994 and the hedge fund managed almost $36 billion of assets at its peak, but assets under management fell to $9 billion last year. The fund is currently managing almost $10 billion in assets under management and its 13F portfolio’s value stood around $3.2 billion at the end of the September quarter.

John Paulson seeks to invest for the long-term, with the average time held for the top ten stock stands around 10 quarters. The healthcare sector accounts for 44% of the overall portfolio, thanks to big stakes in Horizon Therapeutics and Bausch Health Companies. Investments in the basic material sector account for 24% of the 13F portfolio while communication services weighting stands just over 9%. Paulson & Co has also diversified its portfolio towards financial services, consumer cyclical, and real estate sectors.

John Paulson of Paulson & Co

Paulson & Co is well known for investing in merger arbitrage, event-driven, and distressed assets. Prior to Paulson & Co, the investing guru worked as a managing director in mergers and acquisitions at Bear Stearns. He received a Master of Business Administration degree from Harvard Business School in 1980.

While John Paulson’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as 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 88 percentage points since March 2017 (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 16. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s start reviewing billionaire John Paulson’s top 10 stock picks to see whether one of the most prominent hedge fund manager’s long-running investments worked in 2020.

10. DISH Network Corporation (NASDAQ: DISH)

John Paulson’s position in DISH Network Corporation (NASDAQ: DISH) underperformed in 2020 as shares of the pay-tv services provider fell close to 10% in the last twelve months. Unfortunately, DISH Network has lost almost half of its value since John Paulson’s hedge fund initiated a position during the first quarter of 2017.

The company is currently working on expanding its wireless offerings. Consequently, it acquired wireless carrier Boost Mobile in 2020 and acquired more than 9 million retail wireless subscribers. DISH seeks to innovate in the wireless market, with the strategy of building the nation’s first cloud-native, Open RAN-based 5G broadband network.

Other hand funds are also bullish on DISH Network as it was in 60 hedge funds’ portfolios at the end of the third quarter of 2020 compared to the all-time high of 58.

9. Discovery, Inc. (NASDAQ: DISCK)

Paulson’s position in Discovery, Inc. (NASDAQ: DISCK) also underperformed in the last twelve months despite a rally of 27% in the last month. The firm has initiated a position in Discovery in 2017, but shares of Discovery saw range-bound movement in the past three years.

The latest rally in Discovery share price is supported by the company’s strategy of moving into the streaming services business. Discovery launched its streaming service Discovery+ this month, with a library of more than 55K shows.

Andaz Private Investments, which posted a return of 14.6% in the first nine months of 2020, presented a bullish case for Discovery in an investor’s letter. Here’s what Andaz Private Investments stated:

“Discovery is extremely undervalued and on a c.30% free cash flow yield. The company also believes its stock is extremely undervalued and is allocating half of that free cash into share buybacks. At a recent conference, they informed the market that they have successfully and significantly increased pricing in their recent Upfront (gathering of TV networks and advertisers). This will most likely result in greater profits and cash flow over the medium term. Discovery continues to gain share in the USA and Internationally.”

8. Viatris Inc. (NASDAQ: VTRS)

Viatris Inc. (NASDAQ: VTRS), which was formed as a result of a merger between Mylan and Pfizer’s Upjohn, is the eighth largest stock holding of Paulson’s portfolio. Paulson’s hedge fund was the long-running shareholder of Mylan prior to the merger agreement.

After a strong share price rally in December, shares of Viatris plunged in 2021 due to a conservative outlook and a longer than expected delay in dividend announcement. The management expects flat revenue for 2021 and described the year as ‘trough’. The management also announced to initiate dividends during the second half of 2021. Previously, the company has announced to initiate dividends after the full quarter following the closure of the merger.

7. AngloGold Ashanti Limited (NYSE: AU)

Shares of AngloGold Ashanti Limited (NYSE: AU) also underperformed in the last twelve months despite a strong rally during the second and third quarter of 2020. The firm has initiated a position in AngloGold in 2009 and it currently accounts for 5.73% of the overall portfolio.

AngloGold Ashanti is among the biggest gold mining companies in the world and it operates 14 mines and three projects in nine countries. The gold price has been under pressure over the past few months after hitting an all-time high in July 2020. Consequently, the AngloGold share price fell almost 30% in the last six months. Despite that, the company believes they are in a position to offer hefty dividends to shareholders.

6. Takeda Pharmaceutical Company Limited (NYSE: TAK)

Shares of Takeda Pharmaceutical Company Limited (NYSE: TAK) fell 12% in the last twelve months. Paulson & Co has been holding a stake in Takeda since the first quarter of 2019. It is the sixth-largest stock holding of Paulson’s 13F portfolio, accounting for 6.28% of the portfolio.

Despite the sluggish stock performance, the company offers a dividend yield of almost 5%. In addition, it expects revenue to hit $50 billion levels in 2030, up 50% from its 2019 revenue. The company believes its Wave 1 pipeline, which includes 12 new molecules targeted for launch by FY2024, will help in generating the majority of revenues in the years ahead.

The company is currently working on an assets divestiture program to streamline its businesses according to future growth strategies. Takeda exceeded its $10 billion non-core asset divestiture target during the first half of 2020. The company plans to use proceeds for debt reduction and investments in growth opportunities.

5. BrightSphere Investment Group Inc. (NYSE: BSIG)

Billionaire John Paulson’s has benefited from its stake in BrightSphere Investment Group Inc. (NYSE: BISG). This is because the share price of BrightSphere rallied almost 110% in the last twelve months. The firm has initiated a position in the asset management holding company in 2018 and it accounted for 8.04% of the overall portfolio at the end of the September quarter

“Our investment performance remains generally stable though there are meaningful headwinds impacting our value-focused strategies in the current growth focused market.” “In our Alternatives segment, the $0.7 billion of net inflows in Q3‘20 reflect modest pickup in the pace of fundraising activity though we continue to expect pandemic driven delay in the timing of fundraises.” “We believe we continue to be on track to achieve our targeted annualized cost savings of over $20 million by Q1’21 in our corporate center through the implementation of an affiliate-led distribution approach.” “On the capital management front, in the third quarter we reduced the borrowings on our corporate revolver to $80 million from $130 million at the end of Q2’20, reducing our Net Debt / Adjusted EBITDA ratio to 1.5x as of the end of the third quarter compared to 1.7x at the end of the second quarter. Additionally, we fully paid off the remaining $22 million outstanding amount on our non-recourse seed facility,” Suren Rana, BrightSphere’s President and Chief Executive Officer said.

4. NovaGold Resources Inc. (NYSEMKT: NG)

Paulson & Co has been showing confidence in NovaGold since 2010 and it accounted for 8.24% of the portfolio at the end of the September quarter.

Although its shares rallied sharply during the first half of 2020, the decline in gold prices during the second half kept the NovaGold stock price under pressure. Its shares rose only 1% in the last twelve months compared to the double-digit growth in the broader market index. NovaGold Resources is engaged in the exploration and development of gold mineral properties in the United States.

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. The largest stake in NovaGold Resources Inc. (NYSE:NG) was held by Paulson & Co, which reported holding $264.3 million worth of stock at the end of September. It was followed by Sprott Asset Management with a $73 million position. Other investors bullish on the company included Kopernik Global Investors, Odey Asset Management Group, and JNE Partners. In terms of the portfolio weights assigned to each position JNE Partners allocated the biggest weight to NovaGold Resources Inc., around 22.16% of its 13F portfolio.

3. SPDR Gold Trust ETF (NYSEARCA: GLD)

Billionaire John Paulson has also been holding a huge position in SPDR Gold Trust ETF (NYSEARCA: GLD) since 2009. It is the third-largest holding of Paulson’s fund, accounting for 10.46% of the overall portfolio. The price of SPDR Gold Trust ETF grew 16% in the last twelve months, extending the ten years gains to 28%.  SPDR Gold Trust is an exchange-traded fund that invests in gold. Formed in 2004, it tracks the performance of the price of gold bullion. Here is what we said about GLD a couple of months ago:

Investors buy gold because they think its price in terms of US dollars will or could go up. It may go up a lot if printing trillions of dollars out of thin air to cover the budget deficits becomes the standard operating procedure of the Federal Reserve and the U.S. Treasury. Investors usually invest in gold as a hedge.

There were a total of 65 hedge funds with long GLD positions at the end of the third quarter. There are also other hedge fund managers who invest directly in physical gold, so the actual number of hedge funds that invest in gold is much higher. The total value of hedge funds’ GLD positions was nearly $3.5 billion. Ray Dalio has the largest position in GLD among all hedge funds tracked by Insider Monkey. Dalio’s GLD bet was worth $967 million.

2. Bausch Health Companies Inc. (NYSE: BHC)

Despite a stellar performance in the December quarter, shares of Bausch Health Companies Inc. (NYSE: BHC) fell 9% in the last twelve months. Paulson & Co has initiated a position in Bausch in fiscal 2014 and it currently represents the second largest stock holding of 13F portfolio.

Chou Associates Management has presented a compelling investment case for Bausch Health Companies in an investor’s letter. Here’s what Chou Associates Management stated:

“In early August, Bausch Health Companies Inc. announced that it is planning to spin off its eye care business, Bausch + Lomb, into an independent publicly traded company. This will allow the company to concentrate on its gastroenterology, aesthetics/dermatology, neurology and international pharma business.

Chairman and CEO Joseph Papa said, “We’ve looked at the value of our pure health companies like Alcon and Cooper and believe that Bausch + Lomb would compare very favorably when investors have an opportunity to make a judgment about the relative value of the stand-alone business”.

Comparables like Cooper Companies and Alcon Inc. are currently trading between 18 and 20 times EBITDA. If Bausch + Lomb trades at similar multiples as a stand-alone company, the total value of Bausch Health using sum-of-the-parts method, net of debt, should be worth north of $35 per share, as an inference. For a long time we have felt that Bausch was undervalued, but the investors were not giving credit that management has done a good job in running the operations, selling non-core assets, as well as de-leveraging its balance sheet. They felt the process was too slow, we hope the spin-off of Bausch + Lomb unit will be the catalyst that is needed for investors to price the company closer to its intrinsic value.”

1. Horizon Therapeutics (NASDAQ: HZNP)

Paulson & Co’s position in Horizon Therapeutics Public Limited Company (NASDAQ: HZNP) helped in trimming losses from other investments. Shares of Horizon Therapeutics rose more than 108% in the last twelve months, extending the five years gains to above 300%.  Horizon Therapeutics is the largest stock holding of Paulson’s portfolio. Horizon Therapeutics is a biopharmaceutical company with a major focus on researching, developing, and commercializing medicines for the treatment of rare and rheumatic diseases in the United States and internationally.

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