4 Big Buys and 2 Big Sells by John Paulson

Includes: BRK.A, HPQ, PFE, RIG, WLT, WY
by: Efsinvestment

The hedge fund king John Paulson is the owner of the company Paulson& Co., which has more than $32 billion of assets under its management. His firm made $15 billion in 2007 alone. He is #39 on Forbes' world's wealthiest billionaires.

Paulson& Co was ranked #4 in Institutional Investor's Hedge Fund 100 list. Paulson's portfolio mainly includes financials [45.27%], basic materials [16.46%], energy [11.72%], and services [10.17%]. Here is a brief analysis of his latest two big sells and four big buys picks (data from Finviz and is current as of June 7 close):

Big Sells

Pfizer (PFE): The biopharmaceutical titan entered into a commercialization and development agreement with Clovis recently. As of June 7, Pfizer had a market capital of $163.87 billion, P/E ratio of 19.75, and forward P/E ratio of 9.14. The company did not do well during the last five years in terms of EPS growth. However expectations are pretty high for this year. With a 3.86% dividend, PFE had a profit margin of 12.56% in 2010. Paulson sold out all his holdings in PFE.

The company is not expected to achieve significant EPS growth in the next five years [2.83%]. On the other hand, debts are falling for the last five quarters. Pfizer has been an outperformer since last December. Although the company is favored by Larry Robbins, clearly Paulson has no interest in gambling on it. The stock is still in a high momentum, but I would not be surprised to see a correction.

Walter Energy (WLT): Walter recently agreed on transactions of some coal reserves in Alabama in with Chevron. As of June 7 close, The Florida-based company owns a market capital of $7.2 billion, and a P/E ratio of 14.52. Forward P/E is 7.33. The company had a 49.84% EPS growth over the last five years, and earnings increased by 175.14% this year. ROA is 27.97%, and ROE is 86.75%. With a profit margin of 25.44%, WLT paid a 0.43% dividend in 2010.

Shares multiple topped recently, and debts are decreasing for the last four quarters. On the other hand, P/B is 9.18. Although the company is a buy for Brean Murray, Deutsche Bank, Dahlman Rose, UBS, Davenport, and KeyBanc, it seems that Paulson does not agree with them. I think he made really good profit from Walter, and probably sold somewhere near the top. The stock is in a range-bounded trade zone between $115 and $140. I would not ignore this company. Following is the recent dividend history:

May 4, 2011


Feb 16, 2011


Nov 3, 2010


Aug 4, 2010


Big Buys

Transocean Ltd. (RIG): The worldwide drilling company is based in Switzerland. RIG's market capital as of June 7 is $20.6 billion, and P/E is 49.98. The company has an optimistic forward P/E ratio of 10.12. Analysts expect the company to have a 38.78% EPS growth next year, and 19.84% in the next five years. P/B is 0.95, and operating margin is 14%.

Debts are decreasing for the last four years. Moreover, the company started yielding dividends again after 9 years. Paulson increased its holdings by 239.83%, buying over 17 million shares worth over $1.1 billion. Now, he owns 7.6% of the company. Although Transocean is facing some problems for the time being, it's clear that the company is positioned for future profits, and Paulson's move is a bull's eye.

Hewlett Packard Co. (HPQ): HPQ is awarded a purchase agreement by the United States Air Force for services and supplies it provided for more than five years. As of June 7, California-based HPQ owns a market capital of $76.97 billion, and a cheap P/E ratio of 8.81. Forward P/E ratio is 6.72, and PEG value is 0.7. The company had a 34.98% EPS growth during the last five years, and earnings increased by 17.51% this year. P/S is 0.61, and dividend yield is 1.33%.

Dividend yields are perfectly stable for more than ten years. On the other hand, debts nearly tripled within four years. Paulson's biggest new stake is HPQ in this quarter (25 million shares worth $903 million). What can be said about a trustworthy company with a brilliant future? I think HPQ is one of the dirt-cheap stocks in the market. It would be wise to buy. Following is the recent dividend history of HPQ per share:

Mar 14, 2011


Dec 13, 2010


Sep 13, 2010


Jun 14, 2010


Lubrizol Corp. (LZ) produces ingredients, compounds, additives and resins. As of June 7, LZ has a market capitalization of $8.63 billion, and a trailing ratio of 12.34. Forward P/E is 10.86, and the company had a 36.8% EPS growth over the last five years. Earnings increased by 46.63% this year. ROA is 15.08%, and ROE is 32.57%. Paying a dividend yield of 1.07%, the Ohio-based company had a 13.44% profit margin in 2010.

The company is doing well with its debts, while assets are having healthy increases. LZ did not have a considerable downfall since Mar, 2009. Paulson opened his second biggest stake in LZ in the last quarter, buying 6 million shares worth $805 million.

Apparently Warren Buffett noticed a good future in the company. Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) will acquire Lubrizol for $135 per share (28% premium over the price of $106 before the announcement). Lubrizon had an immense leap in Mar, 2011. Since the acquisition announcement, the stock is trading slightly below $135.

Weyerhauser Co. (WY): The REIT Weyerhauser, founded in 1900, manages about 6.6 million acres of forestland. The market capital of Weyerhauser is $11.04 billion. The company had a whopping EPS growth of 494.65% this year, and 593.99% this quarter. Moreover, analysts expect the company to have a 68.52% EPS growth next year. ROE is 32.01%, and profit margin is 20.86%. WY paid a 2.93% dividend last year. The company is a dividend stock pick for the next 5 years and a pick of Cramer.

Weyerhauser shares double topped recently. Although the company struggles to stabilize its dividend yields, it is doing OK with its debts for the last five quarters. Paulson opened a new stake in WY, worth $692 million. He made this purchase between $20-$25 range. Even though the company faced a downfall in Jun, WY is a nifty dividend pick for the long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.