John Paulson Is Boosting His Position In These 6 Stocks

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 |  Includes: CAG, COF, SLXP, VRX, WFC, WRK
by: The Analyst Hub

John Paulson is the founder and president of Paulson & Co., a New York-based hedge fund with $30 billion in assets under management. He is famous for his bet against subprime mortgages in the last downturn. The billionaire businessman earned $3.7 billion in 2008 by shorting mortgage-backed securities. More recently in 2010 he made $4.9 billion from his portfolio. His fund is not doing too well in 2011, but it is still worth looking his latest stock picks given his success in directional bets in the recent past.

I previously discussed the top new buys by John Paulson. In addition to new buys, it is also interesting to look at other top companies where Paulson & Co. is increasing its position. The following is a list of top stocks where Paulson & Co. is increasing its position:

Stock

Symbol

Shares Held 03/31/2011

Shares Held 06/30/2011

Change in Shares

Wells Fargo & Company

(NYSE:WFC)

20,500,000

33,600,000

13,100,000

Ralcorp Holdings Inc.

(RAH)

400,000

3,692,000

3,292,000

Rock-Tenn Co.

(RKT)

1,000,000

4,437,754

3,437,754

Capital One Fnancial Corp.

(NYSE:COF)

18,000,000

21,100,000

3,100,000

Salix Pharmaceuticals Ltd.

(NASDAQ:SLXP)

140,000

1,500,000

1,360,000

Medicis Pharmaceutical Corp.

(MRX)

301,161

700,000

398,839

Click to enlarge

Source: 13F filing

Wells Fargo & Company is a diversified financial services company. The company provides banking, insurance, investments, mortgage banking, investment banking, retail banking, brokerage, and consumer finance through banking stores, the Internet and other distribution channels to consumers, businesses and institutions. The company operates in three segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement. Wells' EPS forecast for the current year is $2.80 and next year is $3.45. According to consensus estimates, its top line is expected to decline 4.80% in the current year and 2.00% next year.

It is interesting to see that while Paulson & Co. decreased its position in Bank of America (NYSE:BAC), it added more Wells Fargo to its portfolio. Given current macro uncertainty, I think it is a good strategy to buy well-capitalized names like Wells Fargo where the risk-rewards are more balanced, as compared to riskier banks like Bank of America. Wells Fargo is one of the best buys among large-cap banking companies given its strong balance sheet, strong profitability ratios (ROA and ROE), Tangible Book Value growth opportunity and inexpensive valuations.

Capital One Financial Corporation is a diversified financial services holding company. The company and its subsidiaries offer a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. It operates in three business segments: Credit Card, Consumer Banking and Commercial Banking. Capital One's EPS forecast for the current year is $7.42 and next year is $5.97. According to consensus estimates, its top line is expected to grow 0.50% in the current year and 8.00% next year.

Capital One is another good long candidate among the above stocks. Capital One’s share price has declined along with the broader stock markets. However, if we keep macro picture aside, fundamentals have actually improved for the company in past couple of months. The company has announced two opportunistic acquisitions of ING Direct and US card business of HSBC on very attractive and EPS accretive terms. Several sell side analysts have raised their estimates and upgraded the stock in last one month. Trading at less than 7x forward consensus earnings, I believe stock is a very good buy as compared to other large financial institutions given its transparent business model which should appeal to investors in this volatile market.

Ralcorp Holdings, Inc. is engaged in manufacturing, distributing and marketing private-brand food products, Post brand ready-to-eat cereal products and other regional and value-brand food products in the grocery, mass merchandise, drugstore and food service channels. It operates in five segments: Branded Cereal Products; Other Cereal Products; Snacks, Sauces & Spreads, Frozen Bakery Products, and Pasta. Ralcorp's EPS forecast for the current year is $5.26 and next year is $5.80. According to consensus estimates, its top line is expected to grow 16.7% in the current year and 3.2% next year.

Rock-Tenn Company is a manufacturer of packaging products, recycled paperboard, container board, bleached paperboard and merchandising displays. It operates in four segments: Consumer Packaging, Corrugated Packaging, Merchandising Displays and Specialty Paperboard Products. Rock-Tenn's EPS forecast for the current year is $5.32 and next year is $6.96. According to consensus estimates, its top line is expected to grow 81.70% in the current year and 86.10% next year.

Salix Pharmaceuticals, Ltd. is a pharmaceutical company engaged in acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal disorders. The company’s products include Xifaxan, Moviprep, Osmoprep, Visicol, Apriso, Metozolv, Azasan, Anusol-HC, Proctocort, Pepcid, Oral Suspension Diuril and Colazal. Salix's EPS forecast for the current year is $2.21 and next year is $2.49. According to consensus estimates, its top line is expected to grow 57.10% in the current year and 30.90% next year.

Medicis Pharmaceutical Corporation is a specialty pharmaceutical company focusing primarily on helping patients attain a healthy and youthful appearance and self-image through the development and marketing of products for the treatment of dermatological and aesthetic conditions. Medicis offer a range of products addressing various conditions or aesthetic improvements, including facial wrinkles, acne, fungal infections, rosacea, hyperpigmentation, photoaging, psoriasis, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin). Its primary brands are Dyspory, Perlane Injectable Gel, Restylane Injectable Gel, Solodyn, Vanos (fluocinonide) Cream 0.1%, and Ziana (clindamycin phosphate 1.2% and tretinoin 0.025%) Gel. Medicis' EPS forecast for the current year is $2.44 and next year is $2.67. According to consensus estimates, its top line is expected to grow 6.00% in the current year and 7.80% next year.

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