Analyzing 5 Of John Paulson's Bullish Portfolio Picks

Includes: COF, MOS, NWSA, NYX, WFC
by: Vatalyst

In 2010, John Paulson made a record $5 billion in 2010, which only adds to his already stellar reputation. That is why people look closely at his moves - because it is evident that he is ahead of his peers and knows something most investors do not know. That is why it is worth analyzing some of his recent purchases:

Wells Fargo & Company (NYSE:WFC)

Wells Fargo is a healthy company with a net profit margin of 19.97% in the second quarter of 2011, and a profit margin of 14.86% in 2010. The company has outperformed its competitor, Bank of America (NYSE:BAC) with negative profit margins in the last quarter and last year.

On August 15, 2011, Paulson reduced his position in BAC and added on to his WFC stock. This may have been brought about by the higher than expected earnings of banks in the second quarter where Wells Fargo reported a net income of $3.9 billion and a decline in loan reserves by 1.1 billion.

Wells Fargo is a good stock to own when you already have it because of the healthy balance sheet and good earnings. However, with the unsure state of the economy, I would not recommend buying this stock.

News Corporation (NASDAQ:NWSA)

This stock is a new purchase of John Paulson into his portfolio and it enjoys a return on average equity of 9.18% in Q2 of 2011 and 10.51% through 2010. With the strong financials and continuously excellent return on equity of 9.18% in the first quarter of 2011 and 10.51% for 2010, it is no surprise that this is one of Paulson’s new purchases but this stock does represent only a small portion of his holdings, 0.10 percent.

News Corporation has been rocked by scandal after accusations of phone hacking which has caused the stock to stall a bit and the closure of a 168 year old newspaper. However, the company is strong financially with its cash heavy status and healthy balance sheet. The company has also vowed to buy back $5 billion in shares.

Although the future may be unclear as they deal with the issues regarding the scandal, the current fall of prices may make it difficult to say no to the stock. However, one still needs to be wary of the issues the company currently working out legally.

Capital One Financial Corporation (NYSE:COF)

Capital One has a strong balance sheet with strong assets at a very limited debt behind it. They have $199 billion in assets as of March of 2011 with only $40 billion total debt for the same time period. Their debt was significantly reduced after payments were made to help retire their debts worth $22 billion towards the end of last year. COF also offers a strong return on equity of 13.48% for the second quarter of 2011 and 11.48% for the last year. Capitol One enjoys a profit margin of 23.67% for the second quarter of 2011.

Some of its direct competitors include Discovery Financial Services (NYSE:DFS) and American Express Company (NYSE:AXP). Discovery Financial has a high profit margins and return on average equity in the second quarter of 2011 with 34.56% and 33.01%, respectively. However, DFS is significantly cheaper than COF and AXP is a more comparative company which trades approximately around the same amount, American Express has lower profit margin compared to Capital One with 15.80% as of June 2011. However, it does provide a return on average equity of 28.77% as of June 2011.

The general outlook of analysts when it comes to COF is generally a “Buy” and it is quite understandable considering its healthy financials and strong earnings. Analysts have a strong buy rating for this financial company and I tend to agree. In fact the stock is rated positively by 17 of 25 analysts and it has been upgraded by 5 brokerage analysts in the past four weeks.

Mosaic Company (NYSE:MOS)

Mosaic Company operates in the Non Metallic Mining industry and has been enjoying a net profit margin of 22.75% in the second quarter of 2011 with a return on average equity of 23.02%. It also enjoyed a positive cash flow in the 2nd quarter of 2011 with $1.38 billion in net cash. Its balance sheet is very healthy with $15.7 billion in asset while only having $4 billion in liabilities for a total equity of $11.67 billion in equity.

Mosaic is definitely a buy with the increased possibility of QE3 in the recent Jackson Hole Fed meeting. If the next QE program debuts, commodity prices will increase; specifically agriculture, in which Mosaic primarily operates. Mosaic is also a safe bet because it is a leader in the industry it works in with revenues of almost $10 billion in the last 12 months ending in May of 2011. This is compared to the revenue of its closest competitor, Potash Corporation (NYSE:POT), worth $6.5 billion in the last 12 months ending in December of 2010.


This stock offers a profit margin of 13.74% in the second quarter of 2011 while providing average return on Equity of 8.56% for the same period. Deutsche Boerse (OTCPK:DBOEF) has recently been approved to buy shares of NYSE EuroNext (NYX) by the US committee on Foreign Investments. Although this still needs to go through the competitions committee in both the US and Europe, this is a positive direction for the stock. Its closest competitor is the NASDAQ OMX Group (NASDAQ:NDAQ) which provides comparable return on average equity of 7.25% with net profit margin of 10.86% in the second quarter of 2011.

However, the continuous activity of the market is a good sign for the NYSE Euronext and it can only benefit from the continued volatility of the market. It should be a good time to buy while prices are still low before the influx of new liquidity when QE3 comes.

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