In mid May, billionaire John Paulson’s Paulson & Co. filed its 13F with the SEC, disclosing many of its long equity positions in U.S. stocks as of the end of March. We track hundreds of 13Fs from hedge funds and other notable investors as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). We can also use this database in conjunction with our records of insider trading activity to find stocks which insiders have been buying in an individual manager’s portfolio. Read on for our thoughts on the five largest positions in Paulson’s portfolio which at least one insider has bought in the last three months or see Paulson’s previous filings.
Multiple insiders have been buying Hess Corp. (NYSE:HES), including two in mid May; Paulson initiated a position of 2.7 million shares in the first quarter of 2013. Hess is making progress towards becoming more of a pure-play upstream oil and gas company- possibly encouraged in this endeavour by recent calls to do so from billionaire Paul Singer’s Elliott Management. Currently Hess trades at 11 times forward earnings estimates. While that valuation is fairly low in absolute terms, it’s quite ordinary for large oil and gas companies in the current market environment. With business up we think the company might be worth watching for further results.
The fund was increasing its holdings of Radian Group Inc (NYSE:RDN) and reported ownership of about 12 million shares at the end of March. An officer at the $2.3 billion market cap mortgage insurance company bought a small number of shares at the beginning of that month, satisfying the insider purchase criterion. While the stock is unprofitable on a trailing basis, it has risen over 400% in the last year. While analysts are looking for earnings per share to be significant in 2014 (the forward P/E is 13) the most recent data shows that 25% of the float is held short.
Our database shows two Board members buying Capital One Financial Corp. (NYSE:COF), another of Paulson’s picks, towards the end of April at about $27 per share. Capital One experienced more than a 20% decline in earnings in the first quarter of 2013 versus a year earlier, though going by the trailing and forward earnings multiples the sell-side is expecting the company to rebound: an expected increase in earnings per share results in a forward P/E of 9. Even with the business’s recent troubles, that is a cheap enough price that we think the stock is worth a look. Billionaire Andreas Halvorsen’s Viking Global was one major shareholder in Capital One (find Viking Global’s favorite stocks).
Paulson more than doubled the size of his position in Genworth Financial Inc (NYSE:GNW), which we see a Board member bought 10,000 shares of on May 7th. At a market capitalization of $5.1 billion, the life insurance company trades at 14 times its trailing earnings. However, the stock is much cheaper in terms of consensus earnings for 2014 and net income did more than double last quarter compared to the first quarter of 2012 (though revenue was about flat). In addition, the stock is priced at a discount to the book value of its equity and we’d be interested in learning more about the company. Renaissance Technologies, founded by billionaire Jim Simons, was also buying Genworth (check out Renaissance’s stock picks).
MGIC Investment Corp. (NYSE:MTG) rounds out our list of Paulson’s picks which have also seen insider buying in the last three months. MGIC is another small-cap mortgage insurance company, carrying a valuation of about $2 billion, and like Radian it has been a strong performer over the last year with the stock rising over 150%. Also similarly to Radian, the valuation is somewhat challenging- the stock is pricier here in terms of expected earnings for 2014, with a forward P/E of more than 30- and a number of market players are bearish as 18% of the float is held short.
Disclosure: I own no shares of any stocks mentioned in this article.
