By Eric Winter
John Paulson has had a rough time in the years following his incredible mortgage backed security bet that thrust him into the financial limelight. His fund, Paulson & Co., has been unable to gain traction in generating returns since then, but we still watch the billionaire's portfolio moves to see where the global macro manager's head is. He recently released his fund's 13F, highlighting the positions held by the firm in the last quarter of 2012. Researching these filings has led us to find a strategy that has outperformed the S&P 500 index by 18 percentage points per year over a 10-year period (learn more here). Read on for our quick analysis of Paulson's largest new stock purchases.
Sprint Nextel Corp. (S) stood out as the largest purchase made by Paulson; he built a position size of nearly 128mm shares. The company continues to post negative earnings and is expected to do so for 2013 as a whole, but don't tell the stock price that - S has more than doubled in value on a price per share basis since this time last year. Sprint recently divested a 70% stake of itself to Softbank in a strategic move that should help the company gain more footing in the wireless industry and fund future endeavors. S saw a 25% increase in popularity amongst the funds we track going from Q3 2012 to Q4. Billionaire Leon Cooperman of Omega Advisors holds 56mm shares for himself (read about his portfolio here).
Upstream oil and gas company Plains Exploration & Production Company (PXP) was a $600mm purchase by Paulson, and it bears ties with two other large buys of his in Q4 2012. PXP will be joining McMoRan Exploration Company (MMR) in a two-part acquisition deal by Freeport-McMoRan Copper & Gold (FCX) valued at $9bn. FCX is paying $6.9bn in cash for Texas-based Plains with the purchase price for PXP set at $50 per share, resulting in a possible 7.5% merger arbitrage gain using today's prices. Famed investor George Soros of Soros Fund Management purchased over 950,000 shares in the same time period.
$6.9bn real estate and relocation service provider Realogy Holdings Corp. (RLGY) received an allocation north of $550mm from Paulson. Popular real estate broker brands Century 21 and Coldwell Banker fall under the umbrella of this holding company, which is 50% owned by Apollo Global Management. RLGY went public on the New York Stock Exchange in October of 2012 and has netted a gain of 39% since then. Thirty-two other funds joined Paulson in adding RLGY to their portfolios towards the end of 2012. Billionaire James Dinan of York Capital Management was one of them, purchasing 5.2mm shares for his fund.
Freeport-McMoRan Copper & Gold, Inc. has been in hot water lately with its shareholders, who believe the company's ambitious pricing to purchase PXP and MMR will end up putting over $130mm into the pockets of its directors (who also sit on MMR's board). The company has raised $7bn in debt to finance its purchases, with additional private placements coming in as of February 28th to keep the acquisition train going. On an operations note, FCX continues to see increased demand for copper concentrates in China, where it may double its sales in the next three years. Billionaire Ken Fisher of Fisher Asset Management reduced his position by more than half in Q4 2012.
The aforementioned oil and gas producer McMoRan Exploration Company was allocated almost $250mm by Paulson. As the second part of FCX's purchase, MMR has seen a strong outcry from FCX shareholders who believe that its management is overpaying for MMR shares in the acquisition. The near-bankrupt MMR is currently 31.5% owned by FCX, and a number of FCX directors also spend time serving on MMR's board as well. An exorbitant purchase price for MMR means higher prices paid to each director for his or her stock in MMR, which has rightly been met with opposition by MMR shareholders. Whether or not the deal will see approval in its current state is yet to be decided. Billionaire Louis Bacon of Moore Global Investments built a call position in the stock last quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.