Billionaire John Paulson’s 13F Picks Post 13% Drop in Q1

Billionaire John Paulson, famed for making a whopping $15 billion by betting against subprime mortgages in 2007, founded hedge fund firm Paulson & Co. in 1994 with only $2 million. The investment firm currently manages approximately $19.3 billion, after having peaked in 2011, when the firm was managing as much as $38 billion. Mr. Paulson, who earned a degree at Harvard Business School, has been on a rough ride in recent years, as his firm’s disappointing performance has forced him to put up his own capital to back a line of credit of his firm. The multi-billion-dollar hedge fund specializes in event-driven arbitrage strategies such as merger arbitrage, bankruptcy reorganizations and distressed credit, structured credit, recapitalizations, restructurings, and other corporate events. According to data compiled by Insider Monkey, Paulson & Co.’s 56 long positions in companies with a market capitalization above $1 billion posted a weighted average loss of 13.1% in the first quarter of 2016, based on the size of those positions on December 31. “The most important thing in investing though is to be true to your compass”, said the billionaire investor in a fresh interview after being awarded the 2016 Leadership Dinner Business Statesman Award by the Harvard Business School. Mr. Paulson also said that “[…] you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment”. With that in mind, let’s take an in-depth look at Paulson & Co.’s largest holdings as of the end of 2015 and examine their performance in the first quarter of the current year.

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).

#5 Mylan NV (NASDAQ:MYL)

– Shares Owned by Paulson & Co. (As of December 31): 22.79 Million

– Value of Paulson’s Holding (as of December 31): $1.23 Billion

– Q1 Return: -14.3%

Paulson & Co. increased its exposure to Mylan NV (NASDAQ:MYL) by 881,000 shares or 4% during the December quarter, ending 2015 with 22.79 million shares valued at $1.23 billion. Mylan is a global pharmaceutical company that develops, manufactures and markets generic, branded generic and specialty pharmaceuticals. The shares of the Netherlands-domiciled company have declined 22% in the past 12 months, partly because of allegations of price gouging around embattled Valeant Pharmaceuticals. Several news outlets recently pointed out that the price of Mylan’s EpiPen Auto-Injector, which is used for the treatment of severe allergic reactions, was lifted from roughly $76 per package in 2001 to more than $500. Moreover, Mylan has pursued numerous acquisitions in the past decade or so, which might provide yet another resemblance with Valeant. In mid-February, Mylan issued a public offer to the shareholders of Swedish-based Meda AB to acquire all shares of Meda for approximately $7.2 billion. Meda AB is an international specialty pharma company that has a wide portfolio of branded, over-the-counter and generic drugs sold in more than 150 countries. The aforementioned offer is anticipated to close by the end of the third quarter of this year. The hedge fund sentiment towards Mylan declined in the fourth quarter of 2015, with the number of funds invested in the company dropping to 60 from 74 quarter-on-quarter. Scott Ferguson’s Sachem Head Capital Management LP acquired a new stake of 3.35 million shares in Mylan NV (NASDAQ:MYL) during the October-to-December period.

#4 Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

– Shares Owned by Paulson & Co. (As of December 31): 20.41 Million

– Value of Paulson’s Holding (as of December 31): $1.34 Billion

– Q1 Return: -18.0%

The multi-billion-dollar hedge fund upped its position in Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) by 2.41 million American Depositary Receipts (ADRs) during the December quarter to 20.41 million ADRs, which were valued at $1.34 billion. Teva Pharmaceutical is an Israel-based pharmaceutical company that develops, produces and markets generic medicines, as well as a portfolio of specialty medicines. In July 2015, the world’s largest maker of generic drugs announced an agreement to purchase Allergan’s generics drug business Actavis Generics for a consideration of $33.75 billion in cash and roughly 100 million Teva shares. The acquisition, which is anticipated to close in the near future, will strengthen Teva’s negotiating power with governments and private health insurers. Teva Pharmaceutical generated total revenue of $19.65 billion in 2015, which decreased from $20.27 billion in 2014 and $20.31 billion in 2013. Meanwhile, the expiration of the original patent for the company’s leading multiple sclerosis therapy Copaxone has triggered a wave of patent challenges and legal actions from other drug manufacturers. Copaxone accounted for approximately 20% of Teva’s revenues in 2015, and contributed significantly to the company’s bottom-line figure and cash flow from operations. The number of hedge funds with stakes in the Israeli company increased to 81 from 70 during the final quarter of 2015. Those 81 funds amassed 17.40% of the company’s outstanding number of ADRs. Andreas Halvorsen’s Viking Global owns a larger stake in Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) than Paulson & Co.’s, comprising 25.04 million shares as of December 31.

#3 Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)

– Shares Owned by Paulson & Co. (As of December 31): 13.27 Million

– Value of Paulson’s Holding (as of December 31): $1.35 Billion

– Q1 Return: -74.1%

John Paulson’s fund increased its position in embattled Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) by 4.38 million shares during the fourth quarter of 2015, ending 2015 with 13.27 million shares valued at $1.35 billion. The Canadian-based pharmaceutical company has seen its market value plummet by 84% in the past 12 months, after various politicians criticized the company for exploitative price gouging and short-sellers condemned the company’s relationship with mail-order pharmacy Philidor RX Services LLC, which was accused of accounting fraud. Nonetheless, shares of Valeant jumped 10% on Tuesday, after the company announced the completion of its internal review of various Philidor and related accounting matters, saying that no additional issues requiring restatement had been found. More importantly, the company also said that it is on track to file its Form 10-K with the SEC before the end of April, which implies that Valeant is not likely to default on its debt for breaching financial reporting covenants. Therefore, it appears that the appointment of activist investor Bill Ackman to the company’s Board of Director has started to bear fruit. The highly-scrutinized pharmaceutical company also announced plans to replace Chief Executive Officer Michael Pearson, a move intended to regain some credibility and restore investors’ confidence in the company. There were 83 money managers from our system with stakes in Valeant at the end of 2015, amassing 36% of the company’s outstanding common stock. According to a recent 13D filing, Mr. Ackamn’s Pershing Square Management Capital L.P. owns 30.71 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), which include 21.59 million shares of common stock and 9.12 million shares underlying over-the-counter American-style call options.

#2 Shire PLC (ADR) (NASDAQ:SHPG)

– Shares Owned by Paulson & Co. (As of December 31): 6.84 Million

– Value of Paulson’s Holding (as of December 31): $1.40 Billion

– Q1 Return: -15.8%

Mr. Paulson and his team were mildly bullish on Shire PLC (ADR) (NASDAQ:SHPG) in the final quarter of 2015, after increasing the stake in Shire by a mere 39,600 ADRs during the quarter. The 6.84 million-ADR stake at the end of 2015 was worth $1.40 billion, accounting for 8.39% of the fund’s equity portfolio. Earlier this year, the Boards of Directors of Dublin-based Shire and Baxalta Inc. (NYSE:BXLT) reached an agreement under which the two entities will merge to create a global leader in rare disease drugs. The terms of the agreement say that Baxalta shareholders are set to receive $18.00 in cash and 0.1482 Shire ADS per each Baxalta share. Baxalta is a global biopharmaceutical company that develops, manufactures and commercializes therapies for orphan diseases and underserved conditions in hematology, oncology and immunology. The aforementioned transaction is anticipated to close in mid-2016. Shire current trades around 11.8-times expected earnings, which implies a 24% discount to the pharmaceutical sector (the forward P/E multiple for this sector equals 15.6). At the end of March, the United States District Court for Southern Florida ruled in favor of Shire PLC, preventing Allergan from marketing generic versions of Shire’s LIANDA, a drug for ulcerative colitis, in the United States until 2020. A total of 40 hedgies tracked by Insider Monkey had long positions in Shire at the end of 2015. William B. Gray’s Orbis Investment Management owns 494,865 ADRs of Shire PLC (ADR) (NASDAQ:SHPG) as of the end of the final quarter of 2015.

#1 Allergan plc (NYSE:AGN)

– Shares Owned by Paulson & Co. (As of December 31): 5.53 Million

– Value of Paulson’s Holding (as of December 31): $1.73 Billion

– Q1 Return: -14.2%

Paulson & Co. trimmed its stake in Allergan plc (NYSE:AGN) by 1.65 million shares during the December quarter, ending the year with 5.53 million shares valued at $1.73 billion. Allergan plc and Pfizer Inc. (NYSE:PFE) inked a merger agreement in November 2015, under which the two companies were set to create the world’s largest drug maker. That multi-billion-dollar deal was also set to be one of the largest tax inversions in the entire history, but the Obama administration took serious steps that appear to have brought an end this mega-deal. According to a fresh article by Financial Times, the Board of Directors of Pfizer decided to abandon the deal, after the U.S. Treasury Department announced proposed regulations that are believed to specifically target the Pfizer-Allergan merger. The maker of Botox and other drugs has seen its shares plummet nearly 15% on Tuesday, which represents a sign that investors do not believe that the deal will go through. Assuming that the New York-based pharmaceutical company walks away from the previously-planned transaction, the company has to pay Dublin-based Allergan a break-up fee of up to $400 million. Allergan was the most popular stock among the hedge funds tracked by Insider Monkey at the end of the fourth quarter, with 159 money managers being invested in the company. Dan Loeb’s Third Point LLC reported owning 5.40 million shares of Allergan plc (NYSE:AGN) through its 13F for the December quarter.

Disclosure: None