John Paulson started Paulson & Co in 1994. He became famous for his bets against subprime mortgages. Before that he was relatively unknown and pursuing a merger arbitrage strategy with mediocre returns. In 2010, he made $5 Billion by betting on gold.
The best performing stocks in the market are usually the highest growing stocks or the stocks with the highest expected growth rates. This doesn’t mean that one should be invested in growth stocks and stay away from the value stocks at all times. Historically value stocks managed to beat the growth stocks hand over fist. The reason is simple. Value stocks are beaten down stocks with very low or negative growth expectations. Not surprisingly it is easier for these stocks to beat the expectations on the average. On the other hand, everybody is extremely bullish about growth stocks and expect them to have higher growth rates in the future. Their stock prices also reflect this fact. Not surprisingly, it is more difficult for these stocks to beat these challenging expectations.
We ranked John Paulson’s stock picks based on their expected five-year growth rates. These are Paulson’s holdings with at least $400 million invested at the end of June.
Bank of America Corporation, an American multinational banking and financial services corporation, is the largest bank holding company in the United States by assets, and the second largest bank by market capitalization. It lost 56.25% since the beginning of this year. It has a market cap of $63.44 billion and a forward P/E ratio of 5.53, and is expected to shrink over the next five years. Paulson had $662 million invested in BAC shares. Bruce Berkowitz also held a $1.09 billion position in BAC at the end of June (see Bruce Berkowitz’s top stock picks).
Weyerhaeuser is one of the largest pulp and paper companies in the world. It is the world’s largest private sector owner of softwood timberland; and the second largest owner of United States timberland, behind Plum Creek Timber. It lost 11.12% since the beginning of this year. It has a market cap of $9.18 billion and a forward P/E ratio of 28.18, and is expected to grow at a rate of 1.27% over the next five years. John Paulson had $656 million invested in WY shares. Israel Englander also held a $7.5 million position in WY at the end of June.
Transocean Ltd. is one of the world’s largest offshore drilling contractors. The company rents floating mobile drill rigs, along with the equipment and personnel for operations, to oil and gas companies at an average daily rate of US$283K (2010). It lost 25.4% since the beginning of this year. It has a market cap of $16.34 billion and a forward P/E ratio of 8.89, and is expected to grow at a rate of 2.29% over the next five years. Paulson had more than $1 billion invested in RIG shares. Leon Cooperman also held a $ 72 million position in RIG at the end of June.
XL Group plc is a financial services company headquartered in Ireland with executive offices in Bermuda. It lost 9.45% since the beginning of this year. It has a market cap of $5.8 billion and a forward P/E ratio of 8.86, and is expected to grow at a rate of 5.5% over the next five years. Paulson had $620 million invested in XL shares. Ken Griffin held a more than $144 million position in XL at the end of June.
The Hartford Financial Services Group, Inc. is a Fortune 500 company and one of America’s largest investment and insurance companies. With 2010 revenues of $22.4 billion, The Hartford is a leading provider of life insurance, group and employee benefits, automobile and homeowners insurance and business insurance – as well as investment products, annuities, mutual funds, and college savings plans. It lost 32.66% since the beginning of this year. It has a market cap of $8.12 billion and a forward P/E ratio of 4.93, and is expected to grow at a rate of 6.09% over the next five years. Paulson had $1.07 billion invested in HIG shares. David Tepper held a large position in HIG shares as well.
SunTrust Banks, Inc., is an American bank holding company. The largest subsidiary is SunTrust Bank. It lost 36.83% since the beginning of this year. It has a market cap of $9.89 billion and a forward P/E ratio of 9.02, and is expected to grow at a rate of 7.64% over the next five years. Paulson had $829 million invested in STI shares. Ken Griffin held a nearly $50 million position in STI at the end of June.
Hewlett-Packard Company is an American multinational information technology corporation headquartered in Palo Alto, California, USA that provides products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the government, health and education sectors. It lost 38.26% since the beginning of this year. It has a market cap of $50.17 billion and a forward P/E ratio of 5.53, and is expected to grow at a rate of 8.01% over the next five years. Paulson had $855 million invested in HPQ shares. Bill Miller also had nearly $160 million invested in HPQ at the end of June.
Baxter International Inc. is an American health care company with headquarters in Deerfield, Illinois. The company primarily focuses on products to treat hemophilia, kidney disease, immune disorders and other chronic and acute medical conditions. It returned 12.52% since the beginning of this year. It has a market cap of $31.48 billion and a forward P/E ratio of 11.87, and is expected to grow at a rate of 8.79% over the next five years. Paulson had $457 million invested in BAX shares. D.E. Shaw held a $47 million position in BAX at the end of June.
