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Despite a sluggish U.S. economy which has resulted in bearish stock markets, most analysts see high potential in some companies. Hedge fund billionaire John Paulson also finds some of the shares a good buy at current stock prices. Some of Paulson’s current buy recommendations are as follows:

Wells Fargo & Company (WFC)

Wells Fargo is trading around $23, which is lower than its book value of $23.86 making it an attractive buy. The share price is also 13.74% below its 50-day simple moving average and is down 23.75% from its 52 week high of $34.25. WFC, in Paulson’s portfolio, is likely the most undervalued stock. Wells Fargo reported earnings of $2.58 per share while Bank of America (BAC) generated a loss of $1.64 per share for the 12-month period ending June 30, 2011. Citigroup Inc. (C) reported EPS of $3.24 for the same period while JPMorgan Chase & Co (JPM) ended with earnings of $4.68 per share.

In its latest news, the bank plans to test a monthly fee for its debt card users in some states in reaction to new regulations from U.S. Congress to limit bank charges for debit cards. Most of the analysts believe that if the regulation is implemented industry-wide, Well Fargo will be only financial institution to implement fees without losing customers. The bank also recently announced a cash dividend of $20 per share on 8% of its non cumulative perpetual class A preferred stock and a cash dividend of $18.75 per share on 7.5% of its non cumulative perpetual convertible class A preferred stock. The respective cash dividends are to be paid on September 15, 2011. Given the outsized potential for appreciation in the common shares I would stick with WFC.

Capital One Financial Corp (COF)

Looking at its fundaments, Capital One seems to be trading at highly attractive levels. The share price is trading at 5.5 times the company’s earnings per share. On comparing its price to earnings with Capital One’s industry peers we can see that American Express (AXP) is trading at a price to earnings of 11.65 times while Discover Financial Services (DFS) is trading at price to earnings of 7.72 times. The stock is also trading 34% below its book value of 62.92 which makes it undervalued on a book-value basis. The share price is also 13% below its 50 day simple moving average.

Capital One earned a net profit of $3.50 billion for the 12 months ended June 30, 2011. American Express reported net income of $4.57 billion while Discover Financial Services ended with a net profit of $1.66 billion for the respective period. Paulson rates COF very high and has invested around $1.1 billion worth of shares. Moreover, he also increased the COF proportion in his portfolio by 17% in the second quarter.

Mosaic Company (MOS)

High profitability at the Mosaic Company is evident from its return on equity of 24.63% while its competitor Agrium Inc (AGU) maintains an ROE of 19.76%. This makes Mosaic very attractive in terms of profitability. Industry leader, Potash Corp of Saskatchewan (POT), maintains the return on equity of 34.03%; however Mosaic beats Potash Corp by net income which stands at $2.51 billion as compared to Potash’s net profit of $2.45 billion for the 12 months ending May 31, 2011. Mosaic is also trading at a much cheaper level, as per its price to earnings of 11.17 times, while, price to earnings for Agrium Inc and Potash Corp stand at 11.20 times and 18.66 times, respectively.

MOS is not just a valuable addition in Paulson’s portfolio but in fact Goldman Sachs (GS) has also increased its holdings in Mosaic. Goldman Sachs held 289,925 shares of Mosaic in its investment portfolio as on March 31, 2011, which was increased by 5,972,190 to 6,262,115 shares as on June 30, 2011. Moreover, Mosaic is anticipated to perform well in a recession.

Walter Energy Inc. (WLT)

Walter Energy is among the few companies with exceptionally high profitability in the industrial metals and minerals industry. The company reported earnings of $7.44 for the year ended June 30, 2011 while its competitor Consol Energy Inc. (CNX) maintains an EPS of $1.97 for the respected period. The competitive position of Walter energy is also much better than that of Westmoreland Coal (WLB) which ended with a loss for the same period, reporting -$2.13 per share. WLT is trading at much cheaper and attractive levels as its price is trading at 9.76 times of its earnings per share while CNX’s price to earnings stands at 20.60 times.

The company’s stock recently went ex-dividend on August 10, 2011, for the payment of its dividend of $0.13 per share. The company is ranked second among its industry peers by revenue per employee RPE which stands at $1.36 million. Highest RPE of $1.45 million in its industry is maintained by US Energy Wyoming (USEG) while Molycorp (MCP) generated revenue per employee of $1.04 million. Paulson categorizes Walter Energy among the most fundamentally strong stocks in its portfolio.

News Corporation (NWS)

News Corporation is ranked among the top five diversified entertainment companies for dividend yield. The share price is trading at a dividend yield of 1.20% compared to the highest dividend yield of 5.40 percent in its industry, topped by World Wrestling Entertainment Inc. (WWE). News Corp posted a return of 10.51% on its total equity which is higher than a return on equity of 7.73% by Time Warner Inc (TWX). The company also bested its competitor CBS Corporation (CBS), which reported a ROE of 7.69%.

The company recently announced its financial results for fiscal year 2011. The company reported a net profit of $2.74 billion or earnings of $1.04 per share as compared to net income of $2.53 billion or earnings of $0.97 per share last year. The company reported an increase in its sales in all of its business segments. The contribution from market leading cable network programming surged 12% while the television segment reported an increase of 7% in its sales.

At the current share price the stock seems much cheaper, and analysts target a price for NWS at $20.56.

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

Source: Billionaire John Paulson's 5 Newest Stock Picks