Jim Cramer used to be a hedge fund manager. Today, he is the host of CNBC’s Mad Money, a TV show where he expresses his opinions on stocks. Many ordinary investors watch his daily TV show and make their own investments based on Cramer's recommendations. Cramer also has a charitable trust, and he purchases many of the stocks he recommends for the trust.
Investors follow Cramer. They also follow famous hedge fund managers, like John Paulson. By betting against subprime mortgages, Paulson made $3.5 billion in 2007 and became an instant celebrity. He made another $5 billion in 2010 by betting on gold. Paulson’s funds did not do well this year. His Advantage Plus Fund lost about 46% YTD through the end of November. Despite the poor performance in 2011, Advantage Plus still returned about 19% per year since inception.
Our research has shown that by focusing on the stock picks of top stock-pickers, like Cramer and Paulson, investors are more likely to outperform the market in the long term. Here are the stocks that are in the 13F portfolio of Paulson & Co at the end of the third quarter as well as in Cramer’s charitable trust, as of December 14.
Weyerhaeuser Co (WY): The forest product company is mainly engaged in growing and harvesting trees, as well as building homes. It has a market cap of $8.83B and a P/E ratio of 20.90. It has a relatively high dividend yield of 3.65%. At the end of September, Paulson had $366 million invested in WY. Cramer, on the other hand, owned 500 shares of WY stocks in his charitable trust as of December 14. The stock returned 6.81% so far in the fourth quarter, lower than the 8.75% for SPY. Jean-Marie Eveillard was bullish about WY as well. As of September 30, his First Eagle Investment Management invested $280 million in this stock.
Alcoa Inc (AA): Alcoa is an aluminum production and management company. Eighty percent of the company’s revenue was from aluminum and alumina during 2010. The company has a market cap of $9.58B and a P/E ratio of 9.54. Cramer’s charitable trust owned 5,700 shares of AA stocks as of December 14, and Paulson’s fund reported to own $281 million worth of AA at the end of September. Since then, AA lost 5.24%. Steven Cohen’s SAC Capital Advisors had $43 million invested in AA at the end of September as well.
Both WY and AA underperformed the market since the end of September. But the relatively high dividend yield of WY makes the stock attractive, especially under the current market condition. AA, on the other hand, has a relatively low P/E ratio and its earnings are expected to grow at 10% in the next few years. So it looks that AA is currently trading at a discount. Therefore, we encourage investors to do some in-depth research on the stocks that both Cramer and Paulson are bullish about for their own portfolio.
Cramer and Paulson also had Bank of America (BAC) common until a few weeks ago, but Cramer sold his remaining holdings in the banking giant. Cramer isn’t bullish about BAC anymore, but we are bullish about financials where Paulson invested a large chunk of his assets this year. It is one of the reasons why he underperformed this year as well. However, we think financials are undervalued, and we expect them to beat the market over the next 12 to 24 months.