John Paulson‘s Paulson & Co has been having it rough for the past two years, as far as stock picking goes. A sour bet on Whiting Petroleum Corp (NYSE:WLL), failed investments in Fannie Mae and Freddie Mac, and the failure of AbbVie Inc. (NYSE:ABBV) to acquire Shire PLC (ADR) (NASDAQ:SHPG) were the highlights of its disastrous moves in 2014. However, Paulson’s fund seems to be making a turnaround at the start of this year, which makes it worthwhile to look at his top five picks heading into 2015, according to his latest 13F filing with the SEC.
John Paulson is perhaps most famous for his bets against subprime mortgages in light of which the assets of Paulson & Co peaked at $38 billion in 2011. As of January 1, 2015 the assets under management amounted to $17.8 billion due to losses and investor withdrawals in the last two years. Founded in 1994, Paulson & Co specializes in event-driven investing which involves profiting from arbitrage opportunities such as merger arbitrage, bankruptcy reorganizations and distressed credit. The company has eight funds under its management with the Paulson Advantage Fund being the flagship fund. Currently, 42.6% of the fund’s investments are in the health care sector.
After the fund increased its holding in Shire PLC (ADR) (NASDAQ:SHPG) by 169% in the third quarter in expectation of the merger deal with AbbVie Inc. (NYSE:ABBV) to materialize, it reduced the stake by 7% in the fourth quarter due to termination of the deal. The shedding of 717,696 shares of Shire in the last quarter has left the fund’s stake in the company at 8.33 million shares, valued at $1.77 billion. The position forms a significant 9.73% of the portfolio value.
Other investors who have also put their hopes in Shire for substantial returns going into 2015, including Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, and Samuel Islay of Orbimed Advisors. The funds have 1.28 million and 1.17 million shares valued at $273 million and $249 million respectively.
Allergan, Inc. (NYSE:AGN) is another one of Paulson & Co’s top picks, as it forms 6.99% of the fund’s portfolio value. Paulson added 992,800 additional shares to the position during the fourth quarter, which now stands at 6.37 million shares, valued at nearly $1.35 billion. The move also marked an 18% increase on the previously held position.
Allergan, Inc. (NYSE:AGN)’s stock is up nearly 9% year-to-date. The Botox manufacturer is set to be acquired by Actavis plc (NYSE:ACT) in light of the $66 billion takeover bid that fended off Bill Ackman of Pershing Square and Valeant Pharmaceuticals Intl Inc (NYSE:VRX), who had made their own attempt to takeover the company.
In its fourth quarter earnings report Allergan beat revenue estimates by $10 million, by posting a top line figure of $1.91 billion. Earnings per share (EPS) also beat the estimates by $0.34 and stood at $2.17.
Time Warner Cable Inc (NYSE:TWC)‘s stake also rose by 18% in the fund’s portfolio. The 1.37 million shares of Time Warner Cable that were added during the fourth quarter put the tally of the stake at 8.70 million which amounted to $1.32 billion. The position comprised 6.83% of the fund’s portfolio value.
The provider of video, high-speed data and voice services has seen its stock price decline by nearly 3.3% year-to-date, and is awaiting regulatory approval of its purchase by Comcast Corporation (NASDAQ:CMCSA). While the company’s $7.52 billion in revenue missed the estimated revenue mark by $30 million, EPS for the fourth quarter beat the estimates by $0.04 and stood at $0.98.
Covidien plc (NYSE:COV)‘s stake declined by 20% in the fund as it offloaded some 2.55 million shares to put the total at just over 10.0 million shares. The market value of the position, which forms 5.31% of the portfolio value stood at about $1.03 billion. Frank Brosens‘ Taconic Capital also has a significant stake in the company amounting to 9.65 million shares, which have a market value of $987 million.
The health care products company, which was recently purchased by Medtronic, Inc. (NYSE:MDT) for $42.9 billion, has a market cap of $48.98 billion and its shares are up nearly 4% year-to-date. In its first quarter results for fiscal 2015, Covidien beat EPS estimates by $0.06 and posted an EPS of $1.11. However, the revenues came in $30 million light and stood at $2.69 billion.
Paulson also expanded his position in DIRECTV (NASDAQ:DTV) by purchasing an additional 11.4 million shares, taking the contribution of the provider of digital television entertainment in the fund’s portfolio to 5.10%. The market value of the position stood at $988 million.
The company’s stock price is nearly flat since the beginning of this year. However, fourth quarter results were impressive as both the EPS and revenues, which stood at $1.53 and $8.92 billion respectively, beat the estimates. DIRECTV was purchased by AT&T Inc. (NYSE:T) for a total of $67 billion, including the assumption of DIRECTV’s $18.6 billion in net debt. That deal is still await regulatory approval.
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