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In 1994, John Paulson founded Paulson & Co. after a long-term investment market career. He is famously remembered for the call he made on the credit crunch, predicting the problems in the subprime debt market. Paulson & Co. now manage approximately $29 billion. We took a look at some of his latest buys to see if we agree with them:

Weyehaeuser Co. (NYSE:WY): Shares are trading at $15.70 at the time of writing, at the bottom end of their 52-week trading range of $15.06 to $25.33. At the current market price, the company is capitalized at $8.46 billion. Earnings per share for the last fiscal year were $2.87, placing the shares on a price to earnings ratio of 5.47. It paid a dividend of $0.60 (yielding 3.80%).

Perhaps Paulson has bought this stock for its dividend yield, or the because of the low price/earnings ratio. Certainly, combining the two, if all other factors are equal and there are no skeletons in the closet waiting to make themselves known, I believe that the combination of a low price to earnings ratio and a high dividend yield is an indicator of a potentially undervalued stock.

But is Weyerhaeuser a better buy than, say, International Paper (NYSE:IP), which has a price to earnings ratio of 8.09 and a dividend yield of 4.40%? Perhaps the answer is in the business model. International Paper does exactly what it says: It produces and sells paper and pulp products world-wide. Weyerhaeuser, on the other hand, is far more diversified. The company not only produces and sells paper and pulp products, but also sells timber based building products, develops land for building, and constructs single-family homes. Going into a recession, which seems likely, the diversification of Weyerhaeuser, along with its low price-earnings ratio and high dividend yield, makes it the better buy, and in my view a good pick at this share price.

Lubrizol Corporation (LZ): Shares are trading at $134.42 at the time of writing, at the high end of their 52-week trading range of $86.33 to $136.16. At the current market price, the company is capitalized at $8.66 billion. Earnings per share for the last fiscal year were $10.90, placing the shares on a price to earnings ratio of 12.33. It paid a dividend last year of $1.44 (a yield of 1.10%).

The company is in the process of being acquired by Berkshire Hathaway (NYSE:BRK.A) for a price of $135 per share. No other counter-bidders appearing, and the shares are fully valued.

Hewlett Packard (NYSE:HPQ): Shares are trading at $23.60 at the time of writing, at the lower end of their 52-week trading range of $22.75 to $49.39. Earnings per share for the last fiscal year were $4.07, placing the shares on a price/earnings ratio of 5.80. Its dividend last year was $0.48 (yield 2.00%)

Hewlett-Packard has recently announced its decision to get out of the personal computer market, a marketplace where it has around a 20% worldwide share and is the number one, and with its purchase of Autonomy (OTC:AUTNF) declared its intention to enter the software market. Here it will compete with the likes of IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT). Its going to be a long, hard struggle against these giants, and one which, I fear, Hewlett Packard is doomed to fail in. In this tough economic climate, pick a known winner, not a new entrant that has a track record of failing to live up to expectations.

XL Group PLC (NYSE:XL): Shares are trading at $18.76 at the time of writing, as against their 52-week trading range of $17.16 to $25.43. At the current market price, the company is capitalized at $5.59 billion. Earnings per share for the last fiscal year were $0.82, and it paid a dividend of $0.44 (yielding 2.30%). The company makes an operating margin of 7.89% from its gross margins of 23.68% on its insurance and reinsurance business. Compare this to Ace Limited’s (NYSE:ACE) 31.93% gross margin and operating margin of 19.58%, or AIG’s 19.75% and 13.19% respectively, and it appears that costs at XL are not under the control they should be. AIG (NYSE:AIG) didn’t pay a dividend last year, but ACE paid a dividend of $1.78 (3% yield). ACE carries a larger debt than XL, but the risk of this is overdone in this low interest rate environment, and more than taken on board with XL’s price to earnings ratio of 22.99 playing against the much lower 8.06 number of ACE. On these numbers, it seems strange that Paulson has picked XL Group over ACE Limited as the better buy moving forward.

International Paper Co. (IP): Shares are trading at $23.67 at the time of writing, against their 52-week trading range of $19.33 to $33.01. At the current market price, the company is capitalized at $10.35 billion. Earnings per share for the last fiscal year were $32.93, and it paid a dividend of $1.05 (a yield of 4.40%). It trades on a price to earnings ratio of 8.09. When compared to its main competitors, International Paper looks a better buy than Meadwestvaco Corp (NASDAQ:MEAD), which trades on a price/earnings ratio of 23.40 and paid a dividend equivalent to a 4.00% yield. However, I prefer Weyerhaeuser (WY), which has similar operating margins, pays a healthy dividend and has a lower price to earnings ratio at 5.47. Weyerhaeuser is also far more diversified, as it sells building materials and constructs single-family homes, on top of the narrower business profile of paper and pulp production of International Paper.

Transocean Ltd (NYSE:RIG): Shares are trading at $51.43 at the time of writing, at the bottom end of their 52-week trading range of $49.05 to $85.98. At the current market price, the company is capitalized at $16.45 billion. Earnings per share for the last fiscal year were $0.11, and the company paid a dividend of $3.16 (a yield of 6.10%).

The shares are trading at an incredible price/earnings ratio of 459.20. The reason for this is the expectation that the fallout from the Gulf oil disaster in April 2010 will not affect the company as much as many fear, and its earnings will be less affected also. However, more details emerge almost on a daily basis – on August 17 Marshall Islands said that failure to follow well abandonment procedures played a part – and this will prove to be a weight on the share price moving forward. A better buy would be Noble Corporation (NYSE:NE). Trading at $29.66, with a more manageable price to earnings multiple of 25.75, the shares yield a respectable 1.80%, and the company does not have the spectre of years of court battles ahead of it.

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

Source: Fund Manager John Paulson's Recent Pick-Ups