John Paulson’s Paulson & Co. is a hedge fund that specializes in credit strategies, mergers, and event-driven arbitrage. Paulson & Co. relies on bottom-up fundamental research for its investments and targets compounding gains over a longer period. According to its latest 13F filing, the investment manager reported an equity portfolio worth $21.69 billion at the end of June, while the largest part, of around 44%, is represented by healthcare stocks. In this article, we will take a look at Paulson’s top healthcare picks, which include: Allergan PLC (NYSE:AGN), Valeant Pharmaceuticals Intl Inc (NYSE:VRX), and Shire PLC (ADR) (NASDAQ:SHPG). These companies also represent the investor’s largest holdings in terms of value.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 123% over the last 35 months, which is more than 65 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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Paulson & Co. increased its position in Allergan PLC (NYSE:AGN) by 27% to 7.17 million shares worth $2.18 billion, during the second quarter. Allergan PLC (NYSE:AGN) is turning out to be among the leaders in the healthcare industry, with the help of significant acquisitions over the past couple of years. It was also the most popular stock among the hedge funds that we track; it was included in the equity portfolio 150 funds, with the aggregate value of their holdings totaling $20.70 billion. Allergan PLC (NYSE:AGN) has recently announced plans to acquire Naurex Inc for $560 million. Naurex is a clinical-stage biopharmaceutical company that focuses on disorders of the central nervous system. Allergan has also amended its acquisition terms for Kythera Biopharmaceuticals Inc (NASDAQ:KYTH), which now represents an all-cash transaction instead of the previously proposed 80%/20% cash/stock offer. Allergan announced the acquisition of Kythera in June, valuing the company at $2.1 billion. Viking Global, led by Andreas Halvorsen, is the second-largest stockholder of Allergan in our database after Paulson & Co, holding 6.80 million shares of the company.
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) represents the second-largest position of Paulson & Co, which held 9.0 million shares valued at $2.00 billion, following the addition of 6.95 million shares during the second quarter. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) surpassed the market’s earnings and revenue estimates for the second quarter, reporting cash earnings per share of $2.56 over revenues of $2.7 billion against estimates of $2.46 per share over revenue expectations of $2.5 billion. However, considering the acquisition cost of Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) and currency headwinds, the biopharmaceutical company reported GAAP net loss of $0.15 per share. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) updated its full-year revenue guidance to between $10.7 billion and $11.1 billion, against the previous outlook of $10.4 billion to $10.6 billion. The healthcare company announced the acquisition of Egyptian pharmaceutical company Amoun Pharmaceutical for $800 million in July. The acquisition will help Valeant Pharmaceuticals Intl Inc (NYSE:VRX) in its expansion plans in the Middle East and North African pharmaceutical market. Bill Ackman’s Pershing Square is the largest shareholder of Valeant in our database. Its position in Valeant Pharmaceuticals includes 19.47 million shares valued at $4.33 billion.
In Shire PLC (ADR) (NASDAQ:SHPG), Pauslon disclosed holding 7.10 million shares worth $1.71 billion. The hedge fund trimmed its stake in the Irish biopharmaceutical firm by 14% during the second quarter. Shire PLC (ADR) (NASDAQ:SHPG) placed a $30 billion bid for the acquisition of Baxalta Inc (NYSE:BXLT) on July 10, which was subsequently rejected. Shire PLC fell short of markets’ earnings expectations for the second quarter, with non-GAAP EPS of $2.63 against estimates of $2.82. Its quarterly revenue increased by 4% on a year-over-year basis to $1.56 billion, slightly below the Wall Street’s estimate of $1.59 billion. Samuel Isaly of Orbimed Advisors is among the largest shareholders of Shire PLC (ADR) (NASDAQ:SHPG), holding 1.31 million shares as of the end of June.
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