Billionaire John Paulson Boosts Stakes in Endo Pharmaceuticals, Akorn; Plus Top Three New Positions

Famous for his bet against subprime mortgages at the height of the US housing bubble, John Paulson was just another hedge fund manager prior to that. Using Credit Default Swaps, Paulson made roughly $4 billion personally in 2007. Three years later he made a killer betting on gold, which netted him $4.9 billion. Forbes estimates Paulson’s current net worth at $9.8 billion. He founded Paulson & Co in 1994 with an initial fund injection of $2 million. Now the fund manages close to $19.4 billion worth of assets, with the equity portfolio carrying an estimated market value of $13.5 billion at the end of the first quarter. Paulson & Co is heavily invested in health care stocks, which account for more than half of the portfolio. In this article we’ll take a look at two moves in the pharmaceutical companies and three new additions made by Paulson and his team during the first quarter.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Pharma Stocks “Deeply Oversold”

During the first quarter, Paulson nearly tripled his investment in Endo International plc (NASDAQ:ENDP), a major pharmaceutical company. According to its recent 13F filing, his fund, Paulson & Co, holds approximately 9.52 million shares valued at $268 million. “Specialty pharmaceutical names are deeply oversold and we believe there is significant upside from this point onwards,” said Armel Leslie, a spokesman for Paulson & Co. Jacob Gottlieb is also optimistic about the prospects of Endo International plc (NASDAQ:ENDP), having boosted his fund’s investment in the compan by 30%. Visium Asset Management reportedly holds 6.68 million shares worth some $188 million. The stock fell by 85% since it reached its all-time high of $96.58 a year ago, as Endo International plc (NASDAQ:ENDP) faced increased competition in the market. Recent revelations about the use of fraudulent pharmacy tactics have also put pressure on the stock. The company has recently slashed its 2016 earnings guidance by 23% to a range of $4.50 to $4.80 per share, while revenue projections were cut by roughly 11% to a range of $3.87 billion to $4.03 billion.

Paulson Bought Some More Akorn Shares

Paulson and his team are also bullish on Akorn, Inc. (NASDAQ:AKRX), another generic drug manufacturer. Worth close to $219 million, Paulson & Co’s stake in the company amounts to 9.32 million shares according to the its quarterly report. Arthur B Cohen And Joseph Healey also had Akorn, Inc. (NASDAQ:AKRX) on their shopping list, with their fund, Healthcor Management LP, having reported ownership of 3.17 million shares at the end of the first quarter. Akorn, Inc. (NASDAQ:AKRX) managed to meet Wall Street’s expectations for the 2016 first quarter, as revenues more than doubled for the same quarter a year ago. The company posted a profit of $41.9 million or $0.54 per share when accounted for one-time gains and costs, in line with analysts’ estimates. Revenues came in at $268.3 million, ahead of projections of $264.9 million. The stock ended yesterday’s trading session at $29.64, down by 19% for the year.

New Position in B/E Aerospace

Is it a good time to buy into B/E Aerospace Inc (NASDAQ:BEAV)? Paulson seems to think so, having recently revealed a fresh stake in the company that amounts to exactly 3.0 million shares reportedly worth $138 million. In the mean time, Thomas Steyer‘s fund, Farallon Capital, indicated ownership of 3.4 million shares of B/E Aerospace Inc (NASDAQ:BEAV), down by 26% from the previous quarter. The company has a market cap of $4.78 billion and pays an annual dividend of $0.80 per share, providing investors with a modest yield of 1.70%. Shares are currently trading at a trailing Price to Earnings (P/E) ratio of 17, slightly below the industry average of 19. Analysts at JPMorgan Chase & Co. have downgraded the stock today to ‘Neutral’ from the previous rating of ‘Overweight’. They have also slightly reduced the price target on the stock to $50 from $54 per share, which indicates an upside potential of around 7%.

Video Games Are Attractive

One of the top players in the video gaming industry, Activision Blizzard, Inc. (NASDAQ:ATVI) also captured Paulson’s attention during the first quarter. The stock fell by as much as 31% in the beginning of the year, offering a possibility to buy on the low. Paulson & Co took its chance and loaded up on 3.14 million shares valued at $106 million at the end of March. Philippe Laffont‘s Coatue Management also has a big bet on Activision Blizzard, Inc. (NASDAQ:ATVI), which accounts for 6.11% of its equity portfolio. According to its latest 13F filing, the fund holds 14.5 million shares worth $489 million. The creator of epic franchises like ‘Call of Duty’ and ‘Warcraft’, Activision Blizzard, Inc. (NASDAQ:ATVI) has recently acquired King Digital Entertainment, a leader in the mobile gaming industry, for $5.9 billion as it looks to increase its mobile gaming presence. The deal had an instant impact on Activision’s bottom line and the revenue generated by King Digital in the first month following the takeover accoutned for 23% of Activision’s revenue from the segment. With such a positive impact, Activision quickly boosted its forward guidance for 2016 to $6.13 billion in revenues and earnings of $0.69 per share.

Fresh Bet On Asset Manager

Paulson & Co has also revealed a new position in American Capital Ltd. (NASDAQ:ACAS), an asset management firm that invests in private equity, leveraged finance and other structured products. Paulson and his team have bought 3.97 million shares of American Capital over the course of the first quarter, worth in excess of $60.5 million according to the fund’s latest 13F filings. Paul Singer also sees great value in American Capital Ltd. (NASDAQ:ACAS), with his fund, Elliott Management, reportedly holding 12.5 million shares, up by 3% over the first quarter. In the beginning of April, American Capital said its share buyback program had reached $730 million, with the board of directors having expanded the program to a range of $600 million to $1 billion in November 2015. The company planned to continue its program and was looking to complete it by the end of the second quarter. For the three months ended March 30, American Capital Ltd. (NASDAQ:ACAS) reported $162 million in revenue, up by 5% year-over-year, and a loss of $0.34 per share.

Disclosure: none.