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Summary

  • John Paulson’s U.S. long portfolio increased from $20.43B to $23.08B this quarter.
  • Paulson & Company's largest three positions are SPDR Gold ETF, Extended Stay America, and Allergan.
  • Paulson & Co. added Covidien plc and increased Cobalt International Energy & Shire plc stakes this quarter. The fund also eliminated American Airlines.

This article is part of a series that provides an ongoing analysis of the changes made to John Paulson's US stock portfolio on a quarterly basis. It is based on Paulson's regulatory 13F Form filed on 08/14/2014. Please visit our Tracking John Paulson's Paulson & Company Portfolio series to get an idea of his investment philosophy and our previous update highlighting the fund's moves during Q1 2014.

This quarter, Paulson's US long portfolio increased from $20.43B to $23.08B. This is compared to a ~30% spike from $15.52B to $20.30B in Q4 2013 and a drop from $17.72B to $14.18B in Q2 2013. The portfolio continues to demonstrate high volatility. There are 82 13F securities in although only 46 of them are significantly large holdings (more than 0.5% of the US long portfolio). The largest holding is SPDR Gold ETF (NYSEARCA:GLD) at 5.68% of the portfolio.

John Paulson is best known for his highly leveraged bets against the real-estate bubble that netted him billions in the aftermath. To learn more about that story, check-out "The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History".

Stake Disposals:

American Airlines Group ((NASDAQ:AAL)): AAL was a 1.06% of the US long portfolio position established in Q4 2013 and increased by 43% last quarter. The stake build-up happened at prices between $24.60 and $39. The position was eliminated this quarter at prices between $33.68 and $41. The stock currently trades at $39.19.

General Motors (NYSE:GM): GM was a very small 0.68% of the US long portfolio position that was disposed of this quarter at prices between $31.93 and $37.09. The original position was more than doubled last quarter at prices between $34 and $41. The quick reversal indicates a bearish bias.

Hess Corporation (NYSE:HES): HES was a 0.71% of the US long portfolio stake established in Q1 2013 at prices between $53 and $73. The position was increased by around 73% in Q2 2013 at prices between $62.87 and $74.14. Last quarter saw an about-turn as the position was reduced by ~62% at prices between $73.92 and $83.22. This quarter, the position was eliminated at prices between $82.88 and $98.40. The stock currently trades at $98.90.

Pioneer Natural Resources (NYSE:PXD): PXD was a 1.64% of the US long portfolio position that was reduced by 23% in Q4 2013 at prices between $179 and $225. Last quarter saw further selling as the stake was reduced by another ~20% at prices between $165 and $205. This quarter, the position was eliminated at prices between $181 and $233. The stock currently trades at $203. The original stake was established in Q4 2012 and doubled in Q1 2013 at prices between $102 and $131. Paulson harvested large long-term gains from this position.

Capital One 2018 Warrants: This was a very small position (less than 1% of the US long portfolio) that was eliminated this quarter. As the position size was minute, the activity does not indicate any clear bias.

New Stakes:

Hillshire Brands (NYSE:HSH), Questcor Pharmaceuticals (NASDAQ:QCOR), Allergan Inc. (NYSE:AGN), Covidien plc (NYSE:COV), & Directv (NASDAQ:DTV): These positions, established this quarter are special in that all of them are part of merger processes. Paulson is an expert in merger arbitrage and he is playing to his strength with these purchases.

Tim Participaceoes S A (NYSE:TSU): TSU is a small 0.67% of the US long portfolio position established this quarter at prices between $23.50 and $30.16. The stock currently trades at $24.11. This was probably an anticipated merger arbitrage play as it was announced last week that Telecom Italia (the parent company) has proposed the merger of its Brazilian assets (aka Tim Participaceoes) to Vivendi.

Stake Decreases:

Anglogold Ashanti (NYSE:AU): This 1.98% position was reduced by ~4.5% this quarter at prices between $15.42 and $18.57. Last quarter also saw a ~11% reduction at prices between $11.39 and $19.36. The stock currently trades at $17.37.

Caesars Entertainment (NASDAQ:CZR): CZR is a 1.07% position that was marginally reduced this quarter. The position was increased by 5.2% in Q4 2013 at prices between $16.74 and $22.39 and another 11% last quarter at prices between $19 and $26.47. The stock currently trades at $13.56. The original holding is from prior to the 02/2012 IPO.

CBS Corporation (NYSE:CBS): CBS was a 1.35% of the US long portfolio position established last quarter at prices between $56.31 and $67.55. The stake was reduced by ~36% this quarter at prices between $55.94 and $63.35. The stock currently trades at $59.99. The quick about-turn indicates a bearish bias.

Freeport McMoRan (NYSE:FCX): FCX is a 0.84% of the US long portfolio position that was reduced by 35% last quarter at prices between $30.50 and $38. This quarter, the position was decreased by another ~48% at prices between $32.56 and $36.50. The stock currently trades at $36.10. The original FCX position was established in Q4 2012 at prices between $30.81 and $42.43. It was increased by just over 70% in Q2 2013. That increase was due to the result of Freeport's acquisition of Plains Exploration & Production and McMoRan Exploration - Paulson held a 3.69% position in PXP and a 1.53% position in MMR, both established in Q4 2012 as risk-arbitrage stakes.

Hartford Financial Services Group (NYSE:HIG): The 0.69% of the US long portfolio HIG position was first purchased in 2009. It was an activist stake and Paulson pushed for changes at the company - in Q1 2012, he called to spin-off the P&C business which he argued will increase shareholder value by 60%. He experienced some limited success but in Q1 2013, the position was reduced by 40% at prices between $22.44 and $26.46 and the following quarter saw another 45% stake reduction at prices between $24.82 and $31.43. This quarter saw a further 25% reduction at prices between $33.30 and $36.67. The stock currently trades at $35.11.

MGM Resorts (NYSE:MGM): MGM was a huge position established in Q2 2010 at prices between $9.48 and $15.89. The last few quarters have seen some selling. The stake was reduced by ~18% last quarter at prices between $23.25 and $28.29 and this quarter saw a 5% reduction at prices between $23 and $26.70. The stock currently trades at $25.04 and the remaining position accounts for a still significant 2.57% of the US long portfolio. Paulson is harvesting long-term capital gains from this position.

Thermo Fisher Scientific (NYSE:TMO): TMO is a 1.65% of the US long portfolio stake established in Q2 2013 at prices between $75.53 and $88.76. It was reduced by ~18% in Q4 2013 at prices between $90 and $111. This quarter saw an additional 30% stake reduction at prices between $113 and $122. The stock currently trades at $122. Paulson is harvesting gains from this position.

Time Warner Cable (NYSE:TWC): TWC is a large 3.29% of the US long portfolio stake established in Q3 2013 at prices between $107 and $118. The position was almost doubled in Q4 2013 at prices between $110 and $138. The aggressive stake build-up worked almost immediately as Comcast (NASDAQ:CMCSA) agreed to buy TWC in an all-stock deal (announced 2/14/2014, 2.875 shares of CMCSA for each share of TWC held). This quarter saw a 15% stake reduction at prices between $133 and $148. The stock currently trades at $148.

T-Mobile USA (NYSE:TMUS): The stake was acquired as a result of the reverse-merger and IPO transaction of MetroPCS with T-Mobile USA. MetroPCS was a 2.19% of the US long portfolio established in Q3 2012. This was a timely purchase for Paulson and he has large unrealized gains. The TMUS stake was increased by ~17% to a 3.25% of the US long portfolio position in Q3 2013 at prices between $23 and $26.12. Last quarter saw a ~17% stake reduction at prices between $29.53 and $33.64 and this quarter saw a further ~18% reduction at prices between $28.10 and $34.86. The stock currently trades at $29.06. Paulson is harvesting large long-term gains from this position.

Vodafone Group (NASDAQ:VOD): VOD was a very small 0.57% position as of Q2 2013. It was substantially increased to a 4.53% position in Q3 2013 at prices between $28.50 and $35.12. Q4 2013 saw a ~76% stake increase at prices between $34.43 and $39.31. Last quarter, the share count reduced as a result of Vodafone's Verizon stake disposal: VOD ADR holders received 6 new shares for 11 old shares held. They also received a $4.9 special dividend and 0.26 shares of Verizon for each share of VOD. This quarter, the position was reduced by ~6% at prices between $32 and $38.26. The stock currently trades at $33.14.

Grifols S A (NASDAQ:GRFS): GRFS is a fairly large 3.74% of the US long portfolio position that was marginally reduced this quarter. As the activity is minor, it does not indicate a change in bias.

Valeant Pharmaceuticals (NYSE:VRX), Bank of America (NYSE:BAC) WTS, and CNO Financial (NYSE:CNO): These are very small (less than 1% of the portfolio each) positions that were further reduced this quarter. As the position sizes are small, the activity does not indicate a clear bias.

Stake Increases:

Cobalt International Energy (NYSE:CIE): CIE was a minute 0.12% of the US long portfolio stake as of Q1 2013. The position was increased to a substantial 2.63% stake in Q2 2013 at prices between $25 and $29. Q3 2013 saw a reversal, as ~17% of the position was sold at prices between $24.40 and $30.20. In Q4 2013, the position was increased by 12.5% at prices between $22.49 and $25. The stake was more than doubled last quarter at prices between $15.85 and $19.46. This quarter, the position was again increased by 52% at prices between $17.20 and $19.36. The stock currently trades at $14.61 and the position stands at 3.26% of the US long portfolio. For investors attempting to follow Paulson, CIE is a good option to consider for further research.

Dollar General (NYSE:DG): The 1% of the US long portfolio DG position was established last quarter at prices between $55 and $63 and was doubled this quarter at prices between $53.50 and $62.82. The stock currently trades at $57.46.

Mallinckrodt PLC (NYSE:MNK): MNK is a 2.33% of the US long portfolio position established in Q3 2013 at prices between $42 and $47.20. It was increased by ~20% this quarter at prices between $60.28 and $82.70. The stock currently trades at $71.66. Mallinckrodt was spun-off from Covidien PLC on July 1, 2013 (one share of MNK for every eight shares of COV). Paulson took the position soon after - the stake is at around 11.5% of the entire business. In April 2014, MNK announced plans to acquire Questcor. Paulson has also acquired a small stake in Questcor this quarter.

Shire PLC ADR (NASDAQ:SHPG): SHPG is a 3.44% of the US long portfolio stake established in Q3 2012 at prices between $85 and $94. In Q2 2013, the position was doubled at prices between $87 and $100. This quarter, the position was again increased by ~36% at prices between $142 and $236. The stock currently trades at $243. On July 18, 2014, AbbVie Inc. (NYSE:ABBV) agreed to buy Shire PLC in a $53B deal.

Family Dollar Stores (NYSE:FDO): FDO is a 2.30% of the US long portfolio position established in Q1 2013 at prices between $54.87 and $64. It was increased by ~50% in Q2 2013 at prices between $57.42 and $65.49. Q3 2013 saw further buying as the stake was increased by another ~50% at prices between $62 and $75. The pattern reversed in Q4 2013 as ~13% of the position was sold at prices between $63.58 and $72.95. Last quarter the selling increased as the position was reduced by one-third at prices between $57 and $67.50. This quarter saw a ~24% stake increase at prices between $56 and $69. The stock currently trades at $76.06.

NOTE: On July 28, 2014, Dollar Tree (NASDAQ:DLTR) agreed to acquire FDO in a cash-and-stock deal for $74.50 per share (cash portion is $59.60). Today, Dollar General upped that by offering to buy FDO at $78.50 per share cash deal.

Kept Steady:

Aetna Inc. (NYSE:AET): AET is a 2.81% of the US long portfolio position that was kept steady this quarter. It was marginally decreased in the last two quarters.

Caesars Acquisition Company (NASDAQ:CACQ): CACQ is a 0.66% of the US long portfolio stake established in Q4 2013 and reduced marginally last quarter. Caesars Acquisition is a spin-off from Caesars Entertainment and the terms of the deal allowed existing shareholders to get CACQ shares at $9.43 (rights offering). Paulson probably took this option to establish the position. The stock currently trades at $11.18.

Cablevision Systems (NYSE:CVC): CVC is a 1.47% of the US long portfolio stake that was first purchased in Q4 2012 at prices between $13.65 and $18.52. In Q1 2013, the position was increased by around one-third at prices between $13.76 and $15.75. Q2 2013 saw an additional 24% stake increase at prices between $13.93 and $16.82. Last quarter saw an about-turn as around 8% of the position was sold at prices between $15.85 and $18.15. The stock currently trades at $18.18.

Equinix Inc. (NASDAQ:EQIX): EQIX is a 1.90% of the US long portfolio position first purchased in Q2 2012 at prices between $147 and $175 and doubled in Q3 2012 at prices between $165 and $203. It had since been kept steady. Q2 2013 saw a reversal as the position was reduced by half at prices between $176 and $230. Q3 2013 saw a 20% stake increase at prices between $165 and $203 and that was followed-up with a 74% stake increase in Q4 2013 at prices between $155 and $184. The stock currently trades at $217. The aggressive stake build-up indicates a clear bullish bias.

Extended Stay America (NYSE:STAY): STAY is Paulson's second-largest 13F position at 5.59% of the US long portfolio. The stake came about as a result of the firm's IPO in November 2013. Extended Stay America filed Chapter 11 bankruptcy on June 16, 2009 and an investment group consisting of Paulson & Company, Blackstone Group, and Centerbridge Partners bought Extended Stay America out of bankruptcy in October 2010. The IPO has already made the firms more than three times their investment. It is interesting that Paulson has chosen to hold on. STAY currently trades at $22.80 compared to the IPO offering price of $20.

Houghton Mifflin Harcourt (NASDAQ:HMHC): HMHC is a 2.57% of the US long portfolio position established in Q4 2013 as a result of its November 2013 IPO. The company filed for Chapter 11 bankruptcy protection in March 2012. Paulson held senior debt that got converted into equity. The IPO was priced at $12 per share and it currently trades at $18.57.

Kodiak Oil & Gas (NYSE:KOG): KOG is a 1.64% position purchased in Q2 2013 at prices between $7.47 and $9.60. It was almost doubled in Q3 2013 at prices between $8.42 and $12.06. The stock currently trades at $14.87.

Mylan Inc. (NASDAQ:MYL): The 2.71% MYL stake was reduced by roughly one-third in Q2 2013 at prices between $28.70 and $32. The original stake was purchased in Q1 2010 at prices between $17 and $23. The position was kept relatively steady until Q1 2013 when it was reduced by a quarter at prices between $27.54 and $31. The stock trades currently at $46.45.

Oasis Petroleum (NYSE:OAS): OAS was a very small 0.25% of the US long portfolio position as of Q3 2013. The stake was increased substantially to a 2.24% position in Q4 2013 at prices between $43 and $57. It was increased by an additional one-third last quarter at prices between $39 and $47. The stock currently trades at $46.70. For investors attempting to follow Paulson, OAS is a good option to consider.

Realogy Holdings (NYSE:RLGY): RLGY is a 1.96% of the US long portfolio position that was kept steady in the last three quarters. The original investment was made prior to the October 2012 IPO. The stock is currently trading at $40.20 and shows a return of around 20% since IPO.

SPDR Gold Trust (GLD): GLD was Paulson's largest position by far at 19.03% of the US long portfolio as of Q1 2013. It was reduced by more than half in Q2 2013 at prices between $116 and $155. The original stake was established in Q1 2009 at prices between $82.71 and $97.80. It was reduced by ~45% in 2011 at much higher prices and since then had been kept relatively steady. The stock currently trades at $125.48. The position was kept steady in the last four quarters and it is currently his largest 13F position at 5.68% of the US long portfolio.

Sprint (NYSE:S): S was Paulson's largest position in Q2 2013 at 9.90% of the US long portfolio. The stake was established in Q4 2012 and doubled in Q1 2013. In Q3 2013, the position was reduced to a 2.27% position at prices between $5.50 and $7.25. Q4 2013 saw a 13% stake increase at prices between $5.97 and $10.79. The stock currently trades at $5.69.

Verizon Communications (NYSE:VZ): VZ is a 1.85% of the US long portfolio position established last quarter as a result of Vodafone's Verizon stake disposal: Paulson held Vodafone stock for which he received 0.26 shares of Verizon stock for each share of Vodafone held. VZ currently trades at $48.80. Dan Loeb of Third Point and Warren Buffett also established significantly sized positions in VZ last quarter.

Whiting Petroleum (NYSE:WLL): WLL was a very small 0.31% of the US long portfolio position in Q3 2013. The stake was increased to a large 3.15% position in Q4 2013 at prices between $58 and $70. Last quarter saw a 9% trimming at prices between $56 and $71. The stock currently trades at $84.61.

Radian Group (NYSE:RDN), Popular Inc. (NASDAQ:BPOP), Novagold (NYSEMKT:NG), HCA Holdings (NYSE:HCA), Genworth Financial (NYSE:GNW), Compuware Corporation (NASDAQ:CPWR) & MGIC Investment (NYSE:MTG): These are small positions (less than 1.5% of the US long portfolio) that were left untouched this quarter.

Other very small positions (less than 0.5% of the US long portfolio each) in the portfolio include Actavis PLC (NYSE:ACT), Agnico Eagle Mines (NYSE:AEM), Allied Nevada Gold (NYSEMKT:ANV), Ally Financial (NYSE:ALLY), Auxilium Pharmaceuticals (NASDAQ:AUXL), BAC 2018 WTS, Brixmor Property (NYSE:BRX), Delphi Automotive (NYSE:DLPH), Dex Media (NASDAQ:DXM), Enzymotec Ltd. (NASDAQ:ENZY), Felcor Lodging (NYSE:FCH), Gold Fields Ltd. (NYSE:GFI), Gulf Coast Ultra Deep Royalty (GULTU), Howard Hughes Corporation (NYSE:HHC), International Tower Hill, Iamgold Corp. (NYSE:IAG), Kamada Ltd. (NASDAQ:KMDA), Measurement Specialties (NASDAQ:MEAS), Novacopper Inc. (NYSEMKT:NCQ), Penn Virginia Corporation (NYSE:PVA), Post Holdings Inc. (NYSE:POST), Randgold Resourced Ltd. (NASDAQ:GOLD), Rock-Tenn Co. (NYSE:RKT), Sibanye Gold (NYSE:SBGL), Strategic Hotels & Resorts (NYSE:BEE), Sunstone Hotel Investments (NYSE:SHO), Vanda Pharma (NASDAQ:VNDA), Whitewave Foods (NYSE:WWAV), and William Lyon Homes (NYSE:WLH).

The spreadsheet below highlights changes to Paulson's US stock holdings in Q2 2014:

(click to enlarge)

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Tracking John Paulson's Paulson & Company Portfolio - Q2 2014 Update