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4 Stocks John Paulson Is Buying - views
In 2011, Paulson & Co. saw its funds got rocked by record losses. And this year, one of the firm’s biggest funds, Advantage Plus, is down around 17% after June’s rally shoved its value 7.9% lower according to data from Bloomberg. A big part of that poor performance comes from the big bets against the eurozone that Paulson has been making, buying credit default swaps and shorting European sovereign debt. As investors get more comfortable about the economic situation across the pond, those bets are hemorrhaging.
And Paulson is getting publicly flogged for it. But I said that he deserves a break, after all, Paulson has publicly stated that his funds’ goal is to outperform over time, not to outperform at all times. So he’s sticking with his conviction bets -- and some of his stock positions are starting to look prescient.
That’s why you should care about the stocks that John Paulson likes enough to buy right now -- and why we’re taking a look at four of them today.
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To do that, we’re digging into his firm’s 13F. Institutional investors with more than $100 million in assets are required to file a 13F -- a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F. And with $15 billion in equity alone under management, Paulson & Co. certainly fits that description.
Without further ado, here’s a look at his four favorite stocks.
Paulson isn’t rolling the dice with Caesars Entertainment (CZR). He likes this firm enough to warrant buying 12.4 million shares in the most recent quarter, a $182 million position at current price levels. That gives Paulson a 9.88% stake in the casino stock formerly known as Harrah’s Entertainment, which had its IPO back in February.
The gaming industry has been under pressure since the start of 2012, compounding the challenges for Caesars; margins have remained under water with the exception of a blip of profitability in fiscal 2009. While that track record of financial performance doesn’t instill the greatest confidence in the investing public, there’s an endgame in CZR’s strategy right now. In May, the agreed to sell off its Harrah’s St. Louis property for $610 million in cash; a full half of CZR’s current market cap in exchange for a property that generates less than 10% of revenue.
The move has important implications for CZR shareholders: first, it suggests that shares of this small-cap stock are trading at a big discount to the market value of its assets, and second, it brings up the possibility that Caesars is unloading less desirable (and profitable) geographic regions from its balance sheet. That opens the doors to profitability in the near future.
As more analyst eyes get on this small-cap name, that bargain price tag could grow considerably. I’d recommend waiting for the sustained downtrend is CZR’s price to get broken before buying.
Medical device maker Covidien (COV) is another name that Paulson & Co. added to its portfolios in the last quarter. The firm bought 1.8 million shares of the $25 billion company, taking on a $100 million stake in shares at current price levels. While COV has been trading sideways for much of the year, the stock’s trajectory has been turning higher since the start of June. That bodes well for Paulson’s portfolio in the second-half of 2012.
Covidien’s diverse set of healthcare products includes medical devices, imaging systems, and pharmaceuticals; that’s positioning that protects COV’s sales from getting hit by any big industry speed bumps that could derail an overly concentrated name. Covidien also stands to benefit from the Supreme Court’s decision on Obamacare, a move that should help to increase the number of patients who are capable of paying for COV’s products. While limited U.S. exposure mitigates the full effect of the ruling on COV’s top line, a rising tide should help to lift all ships in the medical device and pharma businesses.
A strong balance sheet and a history of dividend payouts should help to boost returns for COV shareholders, particularly given the sideways bent that shares have been on since January. Because this stock hasn’t been on a tear for most of the year, it’s not suffering from an overextended valuation. Instead, shares look reasonably cheap right now.
Investors looking for healthcare exposure would do well to follow Paulson’s lead in COV.
Covidien shows up on a list of 8 High-Quality Dividend-Paying European Stocks Trading Cheaply.
Viacom (VIA.B) is a new position that Paulson & Co. initiated last quarter. The hedge fund manager dipped its toe into the stock, buying 1 million shares of Viacom in the last quarter. That’s a $47 million position at current price levels.
Viacom owns a portfolio of cable networks that includes MTV, Comedy Central and Nickelodeon as well as Paramount, a motion picture studio with a massive vault of film properties. The firm’s positioning skews younger, a valuable choice for the media company in that it can offer advertisers unfettered access to the lucrative under-30 demographic. Investors shouldn’t overlook Viacom’s intellectual property either; content licensing deals could eventually be a much bigger source of revenues for the firm.
The firm’s overt war with DirecTV (DTV) has been putting plenty of eyes on shares, but it’s likely to get resolved sooner rather than later.
From a financial standpoint, Viacom is in solid shape. The firm has ample liquidity on its balance sheet and a more than manageable debt load, factors that help to contribute to a reasonably generous 2.34% dividend yield right now. From a technical standpoint, a buy for VIAB is still looking a bit premature -- I’d recommend buying Viacom if it can hold a price above $48.75.
Viacom shows up on a recent list of 5 Stocks to Buy and Hold for True Value.
Gaylord Entertainment (GET) is having a stellar year in 2012. Shares of the mega-hotel operator have rallied more than 54% so far on the year, buoyed by increased spending in the travel industry that pushed sales above their pre-recession highs. While this small-cap stock has historically ebbed and flowed along with the rest of the hotel business (albeit with a higher beta), it’s certainly been flowing since the start of this year.
Gaylord owns the storied Grand Ole Opry, as well as massive hotel properties in cities like Washington D.C., Dallas and Orlando. These properties cater primarily to large groups, who use Gaylord's mammoth venues for conventions, trade shows, and expos. But with big competition in that space, Gaylord will need to stand out in order to stand up come earnings time.
Paulson & Co. bought 1.36 million shares of Gaylord Entertainment last quarter, building a $42 million position in the firm. That’s more than 2.8% of Gaylord’s total market capitalization.
To see the rest of John Paulson’s plays – including a complete list of which stocks he added or sold off, check out the Paulson & Co. Portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.