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John Paulson is the most successful hedge fund manager of the past four years. He made $4 billion by betting against subprime mortgage investments in 2007 and another $5 billion by betting on gold and the recovery of the economy in 2010. Paulson's Paulson & Co. manages separate client-focused portfolios, employing merger arbitrage, long/short, and event-driven strategies. Paulson uses fundamental analysis to make his investments.

Paulson & Co. had 100 securities in its 13F portfolio valued at $29.1 billion at the end of June. In the second quarter of 2011, he sold 21 securities and bought 13 new securities. Paulson had 30 large positions in his portfolio that he also had large positions a year ago. These are the stocks in which Paulson has conviction.

Had Paulson invested equal dollar amounts in each stock on this list; his return would have been 3.2% during the last 12 months (see Paulson’s entire portfolio here). (The market data is obtained from Finviz and Yahoo Finance).

Stock

P/E

Dividend Yield

Return (52- week)

SPDR GOLD TRUST (NYSEARCA:GLD)

N/A

0.0%

50.0%

ANGLOGOLD ASHANTI (NYSE:AU)

114.6

0.5%

5.0%

CITIGROUP (NYSE:C)

8.1

0.2%

-28.6%

ANADARKO PETE (NYSE:APC)

38.9

0.5%

36.4%

CAPITAL ONE FINL (NYSE:COF)

5.4

0.5%

9.8%

HARTFORD FINL (NYSE:HIG)

5.0

2.3%

-10.9%

WELLS FARGO (NYSE:WFC)

9.1

2.1%

-3.9%

SUNTRUST BKS (NYSE:STI)

21.1

1.2%

-29.4%

BANK OF AMERICA (NYSE:BAC)

N/A

0.6%

-45.7%

MGM RESORTS INTL (NYSE:MGM)

2.0

0.0%

-4.2%

COMCAST CORP (NASDAQ:CMCSA)

14.6

2.3%

14.2%

AMERICAN CAP (NASDAQ:ACAS)

2.0

0.0%

54.7%

MYLAN INC (NASDAQ:MYL)

N/A

0.0%

1.7%

GOLD FIELDS (NYSE:GFI)

36.6

1.2%

20.6%

CB RICHARD ELLIS GROUP (NYSE:CBG)

19.3

0.0%

-16.0%

LEAR CORP (NYSE:LEA)

N/A

1.2%

5.9%

CNO FINL GROUP (NYSE:CNO)

5.1

0.0%

22.3%

JPMORGAN CHASE (NYSE:JPM)

7.3

2.9%

-6.2%

NOVAGOLD RES INC (NYSEMKT:NG)

N/A

0.0%

40.8%

POPULAR INC (NASDAQ:BPOP)

5.1

0.0%

-22.3%

LIBERTY MEDIA CORP (LINTA)

11.5

0.0%

30.9%

REGIONS FINANCIAL (NYSE:RF)

N/A

1.0%

-43.1%

VAIL RESORTS INC (NYSE:MTN)

28.7

1.7%

0.2%

STATE STR CORP (NYSE:STT)

N/A

2.3%

-12.7%

BMC SOFTWARE INC (NASDAQ:BMC)

14.8

0.0%

-0.5%

TERADATA CORP DEL (NYSE:TDC)

22.7

0.0%

42.2%

FIRST HORIZON NATL (NYSE:FHN)

71.4

0.6%

-37.3%

RANDGOLD RES LTD (NASDAQ:GOLD)

48.9

0.2%

21.7%

STRATEGIC HOTELS & RESRT (NYSE:BEE)

N/A

0.0%

10.9%

NETAPP INC (NASDAQ:NTAP)

21.0

0.0%

-11.3%

SPDR GOLD TRUST recently traded at $179.95 and gained 50% during the past 12 months. GLD was Paulson's biggest investment during the past 12 months. Paulson had $4.6 billion invested in GLD at the end of June. Paulson bought 31.5 million shares of GLD during the first quarter of 2009 with an average price of $79.8-97.8. Paulson made more than $1.6 billion with his GLD investment.

Paulson has a significant bet on inflation. “While we know that there is very little inflation today, we are concerned about the impact of the quantitative easing on future inflation,” he said. Daniel Loeb’s Third Point is also an investor in GLD (check out Loeb’s top holdings). There are several other hedge funds that invest in gold through gold miners or hold physical gold.

ANGLOGOLD ASHANTI LTD recently traded at $45.84 and has a 0.53% dividend yield. AU gained 4.99% during the past 12 months. The stock has a market cap of $17.5 billion and P/E ratio of 114.6. Paulson had $1.7 billion invested in AU shares. Paulson had included AU in his portfolio during the first quarter of 2009. During the second quarter of 2009, he increased his holdings in AU when the price was between $33.7 and $42.

CITIGROUP recently traded at $26.77 and has a 0.15% dividend yield. C lost 28.58% during the past 12 months. The stock has a market cap of $78.2 billion and P/E ratio of 8.14. Paulson had $1.4 billion invested in C shares. He initially added C to his portfolio during the third quarter of 2009 when the price was between $32 and $50. Citigroup is the largest financial bet in Paulson’s portfolio. He had $1.4 billion in C after trimming his stake by 19% during the second quarter. The stock lost 36% since June.

If Paulson didn’t reduce his stake further, his losses are approximately $400 million. He should have sold more of Citigroup and bought more of Wells Fargo (WFC). Citigroup is also the largest position in David Tepper’s portfolio. Tepper reduced his BAC stake significantly but trimmed his C positions by only 6% (check out David Tepper’s stock picks). Citigroup is also one of the most favored stocks among hedge funds. Bruce Berkowitz's Fairholme, Randall Smith's Alden Global Capital and Bill Ackman's Pershing Square also have huge C positions.

ANADARKO PETE CORP recently traded at $66.09 and has a 0.54% dividend yield. APC gained 36.44% during the past 12 months. The stock has a market cap of $32.9 billion and P/E ratio of 38.88. Paulson had $1.3 billion invested in APC shares. Paulson reduced his position in APC by 21%. This was a $350 million transaction.

CAPITAL ONE FINL recently traded at $41.3 and has a 0.48% dividend yield. COF gained 9.78% during the past 12 months. The stock has a market cap of $19 billion and P/E ratio of 5.43. Paulson had $1.1 billion invested in COF shares. He increased his holdings in Capital One by 17% during the second quarter.

HARTFORD FINL SVCS recently traded at $17.72 and has a 2.26% dividend yield. HIG lost 10.91% during the past 12 months. The stock has a market cap of $7.9 billion and P/E ratio of 4.98. Paulson had $1.1 billion invested in HIG shares.

WELLS FARGO recently traded at $23.36 and has a 2.05% dividend yield. WFC lost 3.91% during the past 12 months. The stock has a market cap of $123.3 billion and P/E ratio of 9.05. Paulson had $943 million invested in WFC shares. One would think that Paulson is giving up on large financials but he increased his stake in WFC by 64% during the second quarter. This was a $350+ million transaction.

SUNTRUST BKS INC recently traded at $16.91 and has a 1.18% dividend yield. STI lost 29.42% during the past 12 months. The stock has a market cap of $9.1 billion and P/E ratio of 21.14. Paulson had $829 million invested in STI shares.

BANK OF AMERICA CORP recently traded at $6.97 and has a 0.57% dividend yield. BAC lost 45.67% during the past 12 months. The stock has a market cap of $70.8 billion and P/E ratio of 0. Paulson had $662 million invested in BAC shares. Paulson sold 51% of his stake in BAC during the second quarter. This was actually a very smart move considering that he had more than $1.6 billion in the company at the end of first quarter. BAC lost more than 36.4% since June. Paulson avoided a $200 million loss by selling this stock. Bruce Berkowitz had $1.1 billion in BAC at the end of June (see Berkowitz’s top stock picks).

MGM RESORTS INTL recently traded at $9.5 and lost 4.23% during the past 12 months. The stock has a market cap of $4.6 billion and P/E ratio of 1.95. Paulson had $551 million invested in MGM shares.

Source: John Paulson's Favorite Long-Term Holdings

Additional disclosure: I am long physical gold.