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By Douglas Ehrman

Managing the third largest hedge fund on the planet at $29 billion in assets under management, 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
. 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 sales by Mr. Paulson and some suggestions of stocks that may be more attractive at current levels.

Boston Scientific Corp. (BSX) – As of the end of the first quarter of 2011, Mr. Paulson reduced his holding of BSX, shrinking his position size by 40.0% to 15.0 million shares at an estimated average sale price of $7.24 per share; this resulted in a portfolio impact for BSX of -0.21%. While BSX trades in line with competitors Johnson & Johnson (JNJ) and St. Jude Medical, Inc. (STJ) on a trailing price-to-earnings basis – BSX trades at 16.2, JNJ at 15.6 and STJ at 16.6 – when both growth and operating efficiency are considered, STJ is the strongest name in the group. Where BSX has a trailing price-to-earnings over growth (PEG) ratio of 1.42 and JNJ is at 2.33, STJ is at 1.12. While a reading below 1 is preferred, STJ’s level, along with other factors is acceptable. In terms of operating margin, where BSX is at 14.8%, JNJ is at 26% and STJ at 25.5%. Overall, STJ is the most attractive stock in the group and represents a great alternative to BSX.

Cheniere Energy Inc. (LNG) – As of the end of the first quarter of 2011, Mr. Paulson liquidated his position in LNG at an estimated average sale price of $7.97 per share. When it seems more likely that the current administration would financial support efforts in alternative energies, specifically liquefied natural gas, LNG was a far more interesting play. While the company recently received bipartisan support, under current economic conditions, other priorities have risen to the top of the heap. Within the energy sector, the better play at current levels is large, integrated energy companies like BP or Exxon Mobil (XOM). These companies can self-fund a push in alternatives will still surviving the challenging conditions which may lay ahead.

Brocade Communications Systems, Inc. (BRCD) – As of the end of the first quarter of 2011, Mr. Paulson liquidated his position in BRCD at an estimated average sale price of $5.94 per share. As an alternative to BRCD, QLogic Corp. (QLGC) is a far more attractive option. Where BRCD has a trailing price-to-earnings ratio of 24.4, QLGC is currently trading at a price-to-earnings ratio of 10.1. This means that an investor is paying significantly less in stock price for each dollar of earnings that he or she receives. Additionally, where BRCD has an operating margin of just 8.4%, QLGC is operating at a 23.7% margin. This combination of better valuation and more efficient operation makes QLGC the better choice at current levels.

Airgas, Inc. (ARG) – As of the end of the first quarter of 2011, Mr. Paulson liquidated his position in ARG at an estimated average sale price of $63.33 per share. As an alternative to ARG, Air Products & Chemicals, Inc. (APD) is a far more attractive option. Where ARG has a trailing price-to-earnings ratio of 20.1, APD is currently trading at a price-to-earnings ratio of 14.8. This means that an investor is paying significantly less in stock price for each dollar of earnings that he or she receives. Additionally, where ARG has an operating margin of just 12.2%, QLGC is operating at a 16.3% margin. This combination of better valuation and more efficient operation makes QLGC the better choice at current levels.

Apollo Group, Inc. (APOL) – As of the end of the first quarter of 2011, Mr. Paulson liquidated his position in APOL at an estimated average sale price of $42.25 per share. As an alternative to APOL, DeVry, Inc. (DV) looks interesting at current levels. While its operating margin of 22.6% is below that for APOL, at 26.2%, valuation metrics are very favorable. Where APOL has a trailing price-to-earnings ratio of 15.7, DV is currently trading at a price-to-earnings ratio of 8.9. When growth expectations are added to the mix, considering the price-to-earnings over growth (PEG) ratio, DV is quite attractive at 0.83 versus APOL at 1.5. A reading under 1 is usually considered to be an attractive stock.

Emergency Medical Services Corp. (EMS) – As of the end of the first quarter of 2011, Mr. Paulson reduced his holding of EMS, shrinking his position size by 32.6% to 0.5 million shares at an estimated average sale price of $65.10 per share; this resulted in a portfolio impact for EMS of -0.04%. EMS was acquired in late May by a private investment firm. No real direct competitors exist, but a strong name in the specialty medical space is MEDNAX, Inc. (MD). With a solid market capitalization, a trailing price-to-earnings ratio of 14, a price-to-earnings over growth (PEG) ratio of 1, and an operating margin of 22.6%, the company looks to be well positioned.

Pfizer, Inc. (PFE) – As of the end of the first quarter of 2011, Mr. Paulson liquidated his position in PFE at an estimated average sale price of $19.07 per share. PFE has been at one time or another most managers’ favorite and least favorite stock. The driving force here is pipeline – what drugs does the company have and what will they have. In this highly competitive space, financial metrics are important, but must be considered in the proper context. With that caveat in mind, GlaxoSmithKline (GSK) looks very strong in the space based on metrics. Where PFE has a price-to-earnings over growth (PEG) of 2.2, GSK is 0.7. Further, PFE has an operating margin of 25.2% versus 39.9% for GSK. When combined with pipeline expectations for both companies, GSK is attractive at current levels.

Source: 7 Stocks John Paulson Is Selling Now