Tracking John Paulson's Paulson & Company Portfolio - Q2 2018 Update

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Includes: AABA, AEM, AET, AGN, AKRX, AU, BAYRY, BHC, BKD, CMCSA, COL, CTL, CZR, DISCA, DISH, EGN, ENDP, FOX, GLD, GOLD, HAWK, HZNP, INSW, MDT, MITL, MNK, MON, MYL, NG, NMRK, NXPI, ODP, OSG, QCOM, SES, SHPG, T, THM, TMQ, TMUS, TSU, TWX, UTX, VIAB, VST, XL
by: John Vincent
Summary

John Paulson’s 13F portfolio value increased from $4.57B to $4.90B this quarter.

Paulson & Company's largest three positions are SPDR Gold ETF, Bausch Health, and Shire plc.

Paulson increased Discovery Communications while reducing Caesars Entertainment.

This article is part of a series that provides an ongoing analysis of the changes made to John Paulson’s 13F stock portfolio on a quarterly basis. It is based on Paulson’s regulatory 13F Form filed on 08/14/2018. Please visit our Tracking John Paulson’s Paulson & Company Portfolio series to get an idea of his investment philosophy and our previous update for the fund’s moves during Q1 2018.

This quarter, Paulson’s 13F portfolio value increased ~7% from $4.57B to $4.90B. There are 54 13F securities in the portfolio, although only 36 of them are significantly large equity holdings (more than 0.5% of the 13F portfolio). The article is focused on the larger holdings. The top five positions are SPDR Gold ETF, Bausch Health, Shire plc, Mylan NV, and Allergan plc and they add up to ~45% of the portfolio. The largest holding is the SPDR Gold ETF at ~11% of the portfolio.

John Paulson is best known for his highly leveraged bets against the real-estate bubble that netted him billions in the aftermath. To learn more about that story, check out “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History”.

Stake Disposals:

DST Systems and Blackhawk Network Holdings (HAWK): These two positions established last quarter were disposed this quarter. SS&C acquired DST Systems for $84 per share cash and the transaction closed in April. Blackhawk Network Holdings was acquired by Silver Lake and P2 Capital Partners for $45.25 per share cash and the transaction closed in July.

Monsanto Company (MON): MON position had seen a stake doubling in Q4 2017 at prices between $115 and $122. There was a ~7% further increase last quarter. It was a merger-arbitrage stake - Monsanto got acquired by Bayer AG (OTCPK:BAYRY) in a transaction that closed in June.

Time Warner Inc. (TWX): TWX was a large 5.38% of the portfolio merger-arbitrage stake purchased in Q4 2016. AT&T reached a deal in October 2016 to acquire Time Warner in a $107.50 half-cash half-stock deal. The transaction closed in June.

New Stakes:

AT&T Inc. (T), Mitel Networks (MITL), Comcast (CMCSA) & Calls, and Akron Inc. (AKRX): These are the new positions this quarter. The T stake came about as a result of the Time Warner acquisition that closed in June. MITL is a merger-arbitrage stake. It is getting acquired by affiliates of Searchlight Capital Partners for $11.15 per share cash. The stock is now at $11. Akron had an agreement to be acquired by Fresenius for $34 per share, but Fresenius abandoned the offer in April after it found material breaches to FDA data integrity requirements. Akorn in turn has filed a complaint against Fresenius asking to fulfill its merger obligation. The stock is currently at $15.69.

Stake Decreases:

Shire PLC ADR (SHPG): SHPG is the third-largest position at 9.66% of the portfolio. It was established in Q3 2012 at prices between $85 and $94. In Q2 2013, the position was doubled at prices between $87 and $100. In Q2 2014, the stake was again increased by ~36% at prices between $142 and $236. The following quarter saw a whopping ~170% increase at prices between $232 and $263. In Q2 2015, the pattern reversed: ~15% reduction at prices between $227 and $260. Q2 and Q3 2016 also saw a combined ~40% reduction at prices between $165 and $207. Last seven quarters saw another ~40% reduction at prices between $125 and $203. The stock currently trades at ~$175.

Note: Shire plc is getting acquired by Takeda in a deal valued at ~$195 per share.

Rockwell Collins (COL): The COL position was increased by ~135% in Q4 2017 at prices between $130 and $137 and that was followed with a ~63% increase last quarter at prices between $133 and $139. It currently trades at ~$136. There was a ~9% trimming this quarter.

Note: Rockwell Collins is a merger-arbitrage stake. It is getting acquired by United Technologies (UTX) for $140 per share in cash-and-stock ($93.33 cash).

Caesars Entertainment (CZR): In October last year, Caesars Entertainment combined with Caesars Acquisition in a merger (bankruptcy court reorg). The terms called for Caesars Acquisition shareholders to receive 1.625 shares of CZR for each share held. Paulson had ~10% stakes in both. Including the conversion, the position saw a ~53% reduction in Q4 2017. Last quarter saw another ~73% selling at prices between $11 and $14.50. The stock currently trades at $10.20. This quarter also saw a ~40% selling at prices between $10.65 and $13.20.

Agnico Eagle Mines (AEM) and Randgold Resources (GOLD): These two small (~0.5% of the portfolio each) stakes were both reduced by ~20% each this quarter.

Stake Increases:

Discovery Inc. (DISCA): DISCA position saw a 320% stake increase last quarter at prices between $21.50 and $26.50 while this quarter there was a ~140% further increase at prices between $21 and $24. DISCA currently trades at $27.83 and the stake is now fairly large at 5.21% of the portfolio.

T-Mobile US (TMUS): The fairly large ~5% portfolio stake in TMUS was purchased in Q1 2017 at prices between $56.60 and $65 and increased by ~46% the following quarter at prices between $60 and $68. Last three quarters had seen a combined ~37% selling at prices between $55 and $65.50. The stock is now at $66.04. There was a very minor ~3% stake increase this quarter.

NXP Semiconductors (NXPI): NXPI stake saw a ~200% increase in Q1 2017 to a 1.56% portfolio position at prices between $96 and $104. The position was almost sold out in Q3 2017 at prices between $109 and $113. Q4 2017 saw another about turn: huge increase to a 3.31% portfolio stake at prices between $113 and $118. There was a ~16% selling last quarter at prices between $115 and $126. The pattern reversed again this quarter: almost two-thirds increase at prices between $92 and $120. The stock currently trades at $93.14.

Note: NXPI was a merger-arbitrage stake. Qualcomm (QCOM) was to acquire them at $127.50 per share cash but that transaction fell through in July.

Altaba Inc. (AABA) previously Yahoo: The 2.73% AABA stake was established in Q2 2017 at prices between $46 and $56 and increased by ~42% the following quarter at prices between $54.50 and $67.50. Q4 2017 saw an about turn: ~55% reduction at prices between $65 and $73. It is now at $69.55. There was a ~10% stake increase in the last two quarters.

Twenty-First Century Fox (FOX): The FOX position was almost sold out last quarter at prices between $34 and $38.50. It was purchased in Q4 2017 at prices between $24.50 and $34.75. This quarter saw the position built back up to a ~1.5% portfolio position at prices between $35.70 and $50. The stock is now at $45.40.

XL Group (XL) and Aetna Inc. (AET): These two ~1% of the portfolio merger-arbitrage stakes saw significant increases this quarter. AXA Group is acquiring XL Group for $57.30 per share cash in a transaction announced in March. Last December, CVS agreed to acquire Aetna in a cash-and-stock deal ($145 per share in cash and 0.8378 CVS shares for each share held). The XL stake was increased by roughly one-third and AET stake by ~71% this quarter. XL and AET currently trade at ~$57 and ~$200, respectively.

Kept Steady:

SPDR Gold Trust (GLD): GLD was Paulson’s largest position by far at ~19% of the US long portfolio as of Q1 2013. The original stake was established in Q1 2009 at prices between $83 and $98 and was reduced by ~45% in 2011 at much higher prices. It was reduced by more than half in Q2 2013 as well at prices between $116 and $155. Q4 2015 and the following quarter saw a combined ~60% reduction at prices between $100 and $122. The stock currently trades at ~$114. The remaining stake is still the largest at ~11% of the portfolio.

Bausch Health Companies (BHC) previously Valeant Pharmaceuticals (VRX): BHC position was increased by almost 300% in Q1 2015 at prices between $143 and $205 and another ~340% the following quarter at prices between $197 and $242. Q4 2015 also saw another ~50% increase at prices between $70 and $182. The aggressive buying against falling prices continued in Q2 2016: ~44% increase at prices between $19 and $36. The stock currently trades near the low end of those ranges at $23.11 and the stake is at 9.89% of the portfolio.

Note: Paulson controls ~6% of Bausch Health.

Mylan Inc. (MYL): MYL is a top five position at 8.52% of the portfolio. The original stake was purchased in Q1 2010 at prices between $17 and $23. Q1 2013 saw a 25% reduction at prices between $27.50 and $31 and the following quarter saw another one-third reduction at prices between $29 and $32. Q4 2014 saw an about-turn: ~20% increase at prices between $45 and $59 and that was followed with a ~50% increase in Q2 2015 at prices between $58 and $76. Last five quarters had seen a ~47% selling at prices between $30.50 and $47.50. The stock trades currently at $39.13.

Allergan plc (AGN): AGN was a minutely small 0.29% of the 13F portfolio position in Q2 2014. The following two quarters saw a ~420% increase at prices between $202 and $271. Q2 2015 saw a further ~27% increase at prices between $283 and $313. In Q4 2015, there was an about-turn: ~23% reduction at prices between $253 and $323. Q2 2016 saw another ~26% selling at prices between $202 and $278. The five quarters through Q4 2017 had seen a combined ~54% selling at prices between $165 and $255. The stock is now at ~$192 and the stake is at ~7% of the portfolio.

DISH Network (DISH): DISH is a 3.41% portfolio position established in Q1 2017 at prices between $58 and $64. Q2 and Q3 2017 saw a combined ~36% stake increase at prices between $52 and $66. The stock is currently below the low end of those ranges at $35.35. There was an ~11% trimming in Q4 2017 while last quarter there was a ~19% stake increase. For investors attempting to follow Paulson, DISH is a good option to consider for further research.

Horizon Pharma (HZNP): The 2.59% HZNP position was purchased in Q2 2017 at prices between $9.65 and $15.75 and increased by ~40% in Q4 2017 at prices between $13 and $15. The stock is now at $21.14. There was a ~3% trimming last quarter.

AngloGold Ashanti (AU): AU is a ~2% position. It is a long-term stake that has been in the portfolio since 2009. Q4 2015 had seen a ~9% trimming while the following quarter saw a one-third reduction at prices between $7 and $14. Q2 2016 saw another ~20% reduction at prices between $13 and $18. The stock is currently at $7.91.

Note: Paulson controls ~3% of AngloGold Ashanti.

NovaGold (NG): NG is a ~2% of the portfolio long-term stake established in 2010. Q2 2016 saw a ~28% reduction at prices between $5 and $6.50 and that was followed with a ~13% selling in Q4 2016. The stock is currently at $3.67.

Note: Paulson has a high cost-basis on NG and controls ~7% of the business.

Vistra Energy (VST) previously TCEH: VST is a 1.79% of the portfolio position established in Q2 2017 at prices between $15 and $20. Vistra exited bankruptcy and started trading in October 2016 at ~$16 per share. There was a ~13% trimming in Q4 2017 and that was followed with a two-thirds reduction last quarter at prices between $17.50 and $21. The stock is now at $23.54.

Endo International plc (ENDP): A very small ENDP stake was increased by almost 200% in Q1 2016 at prices between $28 and $61. The next two quarters saw a combined ~18% reduction at prices between $17 and $43. The stock is now at $17.15 and the stake is at 1.77% of the portfolio. There was a ~28% increase last quarter at prices between $5.50 and $9.

TIM Participacoes (TSU): TSU is a 1.72% portfolio stake first purchased in Q2 2014 at prices between $24 and $30. The position had remained relatively steady since. Last quarter saw a ~10% selling at prices between $19.50 and $22.50. The stock is currently trading below those ranges at $15.04.

International Seaways (INSW): INSW is a spinoff from Overseas Shipholding Group (OSG) that started regular-way trading in December 2016 at ~$15 per share. It is now at $20.52. There was ~6% trimming in Q2 2017 at ~$20.

Note: Paulson controls ~12% of International Seaways.

Viacom (VIAB): The 1.59% VIAB position saw a ~160% stake increase last quarter at prices between $29 and $34 and it is currently near the low end of that range at $29.28.

Mallinckrodt PLC (MNK): MNK is a 1.40% of the 13F portfolio position established in Q3 2013 at prices between $42 and $47. Q2 and Q3 2014 saw a combined 55% increase at prices between $60 and $90. There was selling in H1 2015: ~28% reduction at prices between $94 and $130. Q4 2015 saw the pattern reverse: ~31% increase at prices between $53 and $77. The seven quarters through Q4 2017 had seen a combined ~60% reduction at prices between $21 and $81. The stock currently trades at $34.46.

Note 1: Paulson controls ~3.9% of the business.

Note 2: MNK, a July 2013 spinoff from Covidien plc started trading at around $42. Covidien plc in turn was acquired by Medtronic (MDT) in January 2015.

Energen Corp. (EGN): EGN is a ~1% portfolio stake established last quarter at prices between $49 and $63 and the stock currently trades well above that range at $77.55.

Brookdale Senior Living (BKD), CenturyLink Inc. (CTL), International Tower Hill Mines (THM), Newmark Group (NMRK), and Office Depot (ODP): These are small (less than ~1% of the portfolio each) stakes kept steady this quarter.

Note: Paulson has a ~32% ownership stake in International Tower Hill Mines.

Although the relative position sizes are minute, the following 13F stakes are significant as Paulson has sizable ownership: Synthesis Energy Systems (SES) and Trilogy Metals (TMQ).

The spreadsheet below highlights changes to Paulson’s US stock holdings in Q2 2018:


John Paulson - Paulson & Co - Q2 2018 13F Report

Disclosure: I am/we are long BHC, MYL, NG, NXPI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.