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John Paulson’s rise to fame during the financial crisis of 2008 cemented him at the top of the investment community and nearly made him a household name. Recent surveys have ranked his $29 billion of assets under management as entitling him to the rank of third largest hedge fund on the planet. It is a common tool of both institutional and retail investors to track the trading activity of the world’s largest investors in hopes of gaining some edge; these investors are often a great barometer of general trends in the market. What follows is a discussion of some recent acquisitions by Mr. Paulson and a comparison of the stocks he selected to peers.

XL Group, Inc. (NYSE:XL) – As of the end of the first quarter of 2011, Mr. Paulson added to his holding of XL, increasing his position size by 242.8% to 29.4 million shares at an estimated average purchase price of $22.89 per share; this resulted in a portfolio impact for XL of 1.49%. On paper, XL does not appear to be the strongest name amongst its peers. This highlights one of the weaknesses of this approach, namely that if a stock is added to a portfolio for strategic reasons, rather than for pure attractiveness, certain names may appear more appealing than they should. In this space, ACE Limited (NYSE:ACE) appears to be a better choice by the numbers. Where XL trades at a trailing price-to-earnings of 24.8, ACE trades at 8.6. In terms of operations, where XL has an operating margin of 7.9%, ACE has an operating margin of 19.6%. While it is certainly possible that Mr. Paulson’s analysis contains details not easily accessible, ACE seems the better choice for most in the sector.

Smurfitstone Container Corp. (NYSE:SSCC) – As of the end of the first quarter of 2011, Mr. Paulson initiated a position in SSCC, bringing his holding size to 9.15 million shares at an estimated average purchase price of $35.53 per share; this resulted in a portfolio impact for SSCC of 1.03%. SSCC was acquired late in the second quarter by Rock-Tenn Inc. (NYSE:RKT) in a stock and cash deal. Since that time, Mr. Paulson has continued to acquire stock in the new company, indicating his continued belief in both the industry and the combined management. PKT looks well positioned going into the later part of the year and is expected to perform well.

International Paper Co. (NYSE:IP) – As of the end of the first quarter of 2011, Mr. Paulson added to his holding of IP, increasing his position size by 290.9% to 10.0 million shares at an estimated average purchase price of $28.01 per share; this resulted in a portfolio impact for IP of 0.65%. With a dividend yield of 3.8%, IP makes sense even as a pure income play, particularly given the overall stability of this blue-chip company. By the numbers, IP looks like a good value compared with competitor MeadWestvaco Corp (NYSE:MWV); IP’s other primary competitor is Weyerhaeuser (NYSE:WY) and is discussed below. Where MWV has a trailing price-to-earnings ratio of 25.2, IP trades at 9.5, making it for more aggressively priced on a relative-value basis. While MWV does have a higher operating margin of 10.8% versus 8.8% for IP, this increased margin does not justify the highly elevated price-to-earnings.

Metlife, Inc. (NYSE:MLU) – As of the end of the first quarter of 2011, Mr. Paulson initiated a position in MLU, bringing his holding size to 2.3 million shares at an estimated average purchase price of $84.66 per share; this resulted in a portfolio impact for MLU of 0.57%. This is a very thinly traded issue that pays a substantial dividend, but is likely appropriate for only sophisticated investors who can fully investigate the details of the stock. With an average daily volume of under 200k shares per day, this is one to use as an indicator more than as a trading vehicle.

Baxter International, Inc. (NYSE:BAX) – As of the end of the first quarter of 2011, Mr. Paulson added to his holding of BAX, increasing his position size by 60.0% to 8.0 million shares at an estimated average purchase price of $51.16 per share; this resulted in a portfolio impact for BAX of 0.47%. Where BAX trades in line with the industry average price-to-earnings ratio at 15.2 relative to the average of 15.8, where the company really stands out is in terms of its operating margin. At a margin of 23.4%, the operating margin for BAX is well above the average of 6.2%. Furthermore, the company is very well run and has proven a perennial performer under all market conditions.

Weyerhauser Company (WY) – As of the end of the first quarter of 2011, Mr. Paulson initiated a position in WY, bringing his holding size to 31.7 million shares at an estimated average purchase price of $23.28 per share; this resulted in a portfolio impact for WY of 2.28%. As discussed above, WY’s two principle competitors are IP and MWV. Where MWV has a trailing price-to-earnings ratio of 25.2, and IP trades at 9.5, WY trades at 6.1making it the most attractive on a relative-value basis. Finally, while MWV does have a higher operating margin of 10.8%, as does IP at 8.8%, versus 7.8% for WY, the cheaper valuation of WY is very attractive.

American Capital, Ltd. (NASDAQ:ACAS) – As of the end of the second quarter of 2011, Mr. Paulson initiated a position in ACAS, bringing his holding size to 43.7 million shares at an estimated average purchase price between $4.34 and $6.45 per share; this resulted in a portfolio impact for ACAS of 0.93%. Next to one of its nearest competitors, Ares Capital Corp (NASDAQ:ARCC), ACAS looks very attractive and aggressively priced. Where ARCC trades at a trailing price-to-earnings ratio of 6.7, ACAS is currently trading at a price-to-earnings ratio of 2.2. In spite of the very attractive valuation, ACAS still has an operating margin of 67.9% relative to ARCC at 60.3%. This stock has a good deal of potential and represents a great value.

Source: Billionaire John Paulson's 7 Newest Buys