Top Stocks of John Paulson's Recovery Fund, Up 27%
Paulson opened the Recovery Fund in October 2009 to focus on distressed investment in real estate. It has a private-equity structure, long lock-up periods, and was run by Mike Barr and Jonathan Shumaker, formerly of Lehman Brothers’ real estate private equity division, according to his 2009 shareholder letter.
Well-known for making massive bets on macro events, Paulson seems to be anticipating further recovery in the housing sector, as he started another fund on April 22 called the Paulson Real Estate Fund II LP, an SEC filing shows.
The recovery fund’s gains are helping compensate for an 18.5% drop in gold so far this year, which is hurting Paulson’s gold funds.
Some of the larger positions in Paulson’s $1.9 billion Recovery Fund include housing and mortgage-related companies MGIC Investment Corporation (MTG), Radian Group (RDN) and Realogy (RLGY).
MGIC Investment Corporation (MTG)
Paulson purchased 17 million shares of MGIC in the first quarter of 2013, equal to 8.4% of the company. He paid $3.48 per share on average and has already seen an 85% gain to date. Paulson’s purchase came as the stock began to recover from historical lows it hit in mid-2012.
MGIC is the largest private mortgage insurer in the U.S. It covers 1 million mortgages with $159.5 billion in primary insurance in force as of March 31, 2013. The company enables families to buy homes by offering low-down payment mortgages and protects mortgage investors from credit losses.
The company’s strategy, as stated by its CEO and Board Chairman Curt S. Culver, “which is approved by the Office of the Commissioner of Insurance for the State of Wisconsin, Fannie Mae and Freddie Mac, provides borrowers with a more affordable insurance option, for higher quality loans, than they could find with the FHA."
In the first quarter, the company reported lower revenues and a greater net loss compared to the previous year. New insurance written, however, grew to $6.5 billion, from $4.2 billion written in the first quarter last year. It wrote another $3.0 billion of insurance tied to the Home Affordable Refinance Program which was not included in the total.
The company also saw a decline in the percentage of delinquent loans to 10.91%, from 12.84% the previous year. Losses dropped to $266.2 million from $337.1 million a year previous because the company received fewer new notices of default.
See MGIC’s 10-year price, revenue and net income history:
Howard Marks also bought 4.5 million shares of MGIC in a new position of the first quarter.
Radian Group Inc. (RDN)
Paulson also increased from 8,020,300 million shares to 11.55 million shares his stake in Radian, a stock which has progressed 369% in the past year. The stock is priced at $12.90 Tuesday. At quarter-end Paulson’s position equaled 8.64% of the company.
Radian is another company offering an alternative to the FHA by offering low-down-payment mortgages in the secondary market, and protecting lenders from losses due to loan default.
Radian also reported in the first quarter a steeper loss compared to the previous year. New mortgage insurance written increased 69% from the previous year, and new mortgage insurance written jumped to $10.9 billion, from $6.5 billion the previous year, along with $2.5 billion in insurance from the Home Affordable Refinance Program not included in the total.
Primary delinquent loans at the company fell by 17%, and its primary mortgage insurance delinquency rate declined to 10.9%, from 12.1% the previous year.
Radian’s 10-year price, revenue and earnings history:
Other prominent investors to establish a Radian position during the quarter include George Soros and Lee Ainslie.
Realogy Holdings Corp. (RLGY)
Paulson bought 13,302,344 shares of Realogy in the fourth quarter of 2012, taking a 9.15% stake in the company. Its stock rose by 36% from his $38 average price, to $51.15 per share Tuesday. Realogy began trading on the New York Stock Exchange on Oct. 11, 2012 at an IPO price of $27 per share. Its $1.2 billion in proceeds mainly went to pay off debt.
The company is the largest owner of real estate brokerage franchises in the word, with brands such as Better Homes and Gardens Real Estate, Century 21 Real Estate and Sotheby’s International Realty, to name a few.
In the year’s first quarter, Realogy had revenue of $957 million, a 9% increase from the previous year, and a net loss of $75 million, compared to a net loss of $192 the previous year. EBITDA, however, rose 34% year over year to $71 million due to rising sales volumes at its combined real estate segment services.
The company’s two main branches also saw closed homesale side increases of 6% and 5%, and their average homesale price increased 9% and 6%.
Realogy’s revenue and earnings history:
See more of John Paulson’s stocks in his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of John Paulson.
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