Billionaire John Paulson manages some $29 billion and runs the Paulson & Co. hedge fund. His hedge fund is one of the largest in the world, focused on merger, event and distressed strategies. Prior to founding Paulson & Co. in ’94, John was managing director of M&A at now-defunct Bear Stearns. Outlined below are some of Paulson’s interesting buys during the first quarter (check out Paulson’s new picks).
Paulson has long been a gold bug, and he currently has his hedge fund’s top equity holding as SPDR Gold Trust (ETF) (NYSEARCA:GLD), which makes up 19% of the hedge fund’s portfolio. Paulson’s other big gold bet is AngloGold Ashanti Limited (ADR) (NYSE:AU), making up the fourth spot in the fund’s portfolio. AngloGold is the largest gold producer at 7 million ounces per year, with operations across three continents.
One of Paulson’s big investment theses for AngloGold Ashanti Limited (ADR) (NYSE:AU) is that the company could unlock shareholder value if it split into two; more specifically, splitting the South Africa and non-South Africa operations. Fellow South Africa gold miner, Gold Fields Limited (ADR) (NYSE:GFI), spun off its South African operations earlier this year.
The AngloGold Ashanti Limited (ADR) (NYSE:AU) breakup would look something like “a high-growth international business and a mature high dividend-paying South African company,” according to Paulson. The recent headwinds in South Africa continue to pressure the stock. AngloGold is down nearly 50% year-to-date, and now trades near the bottom of the industry.
This comes as South Africa released its first quarter GDP results, which were worse than expected. Operating expenses for the country are also up. Operating expenses were up 32.5% in just two years for AngloGold, while revenue rose only 19%. AngloGold Ashanti Limited (ADR) (NYSE:AU) now trades on the cheap, at only 8.9 times earnings. This compared to to Goldcorp Inc. (USA) (NYSE:GG) at 16.3 times, NovaGold Resources Inc. (USA) (NYSEAMEX:NG) at 24.8 times, and Newmont Mining Corp (NYSE:NEM) at 10.5 times.
Paulson’s number-two stock holding is Sprint Nextel Corporation (NYSE:S), after an 80% increase in shares owned, makes up 8.1% of the portfolio. Sprint is in the middle of a battle between DISH Network Corp (NASDAQ:DISH) and SoftBank for control over the telecommunications company. Back in 2012, Sprint Nextel agreed that SoftBank would invest $20.1 billion for a 70% ownership, but earlier this year Dish Network moved in with a competing offer.
The Softbank deal received Committee on Foreign Investment in the U.S. last week, which gives it a leg up on the Dish deal. Softbank also upped its offer by 7.5% to $21.6 billion. Meanwhile, DISH Network Corp (NASDAQ:DISH) has also made a bid to buy Clearwire Corporation (NASDAQ:CLWR). Clearwire decided to postpone its shareholder vote on Sprint Nextel Corporation (NYSE:S)’s offer to buy the company in an effort to review the $4.40 per share offer from Dish, and earlier this week announced it is urging shareholders to vote for the Dish deal.
Current Sprint Nextel Corporation (NYSE:S)’s EBITDA margins are at only 14%, but consensus expects them to grow to 20% for 2014 and beyond. The margin expansion will be driven by Sprint’s Network Vision Plan. The plan is for the large scale deployment of LTE and shutdown of iDEN. So far, this has cost Sprint Nextel $4.4 billion over the past three quarters, and it is expected to invest another $6 billion by the end of the year.
Credit: Sprint Nextel Corporation (NYSE:S)
The long-term benefits of this Network Vision Plan are that it will help reduce operating expenses over the long term by eliminating duplicate fixed costs on running different networks. Also, spectrum capacity gained from a Clearwire Corporation (NASDAQ:CLWR) acquisition will help Sprint lower capital expenditures related to capacity increases.
Billionaire Leon Cooperman is alongside Paulson as a big investor in Sprint Nextel Corporation (NYSE:S). The mobile communications company is Cooperman’s largest stock holding (check out Cooperman’s latest moves).
One of Paulson’s newest additions was Family Dollar Stores, Inc. (NYSE:FDO). This discount retailer has more than 7,600 retail discount stores in 45 states across the U.S. Family Dollar posted 1Q EPS of $1.21, compared to $1.15 for the same quarter last year, which comes on the back of 18% sales growth. This positive trend is expected to continue, where consensus shows a 12% rise in sales for fiscal 2013, on the back of 7.2% growth in square footage.