Billionaire John Paulson’s Top 5 Stock Picks

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.”