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The Gold Bull – John Paulson’s Top Yield Gold Stocks in Review

December 30, 2013 | About:
Sally Jones

Sally Jones

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As a high school senior, Guru John Paulson was first into spiritual gold, claiming an interest in the “divine light club” in his school’s yearbook, according to Wikipedia.  After youthful travels to Ecuador, forays into selling flooring and manufacturing clothing, and studies in philosophy, creative writing and film, Paulson ended up as a legendary hedge fund investor and one of the mysterious metal’s biggest proponents.  

With spot gold prices down 25% this year, investors are wondering what’s ahead for Paulson’s PFR Gold Fund, down around 63% this year. Goldman Sachs projects gold  will drop another 15% to an estimated $1,050 in 2014 and Morgan Stanley estimates a price of $1,313.  

A former mergers and acquisitions banker, John Paulson founded Paulson & Co. in 1994, creating an alternative investment manager specializing in global mergers, event arbitrage and credit strategies.  As president and portfolio manager of Paulson & Co., Paulson started the PFR Gold Fund in 2010 in anticipation of inflation caused by the Fed’s asset purchases. 

In a rare television interview with CNBC last summer, Paulson said his gold fund was only 2% of his assets, while the rest of his funds were profitable, ranging from 5% to 32%.  Explaining his identification with gold, the hedge fund giant told CNBC that gold is a currency alternative to the dollar to protect wealth, and that the rational for owning gold is valid.  He said, “The consequence of printing money over time is inflation.  We are at risk of very high rates of inflation…Gold is volatile.  It always has been volatile...  Gold is an important part of anyone’s portfolio.”  Paulson made a biblical reference to “seven years of feast, seven years of famine,” having seen both extraordinary gains and enormous losses in his investment career.

Paulson’s firm specializes in event-driven arbitrage strategies, including merger arbitrage, bankruptcy reorganizations and distressed credit, structured credit, recapitalizations, restructurings, and other corporate events. The firm seeks capital preservation, above average returns over the long-term, and low correlation to the markets. In addition to its hedge funds, Paulson & Co. manages real estate private equity funds and looks for recovery opportunities.

Dedicated to long-term performance, Paulson & Co. manages around $18 billion, down from $36 billion in early 2011. Paulson looks at fundamentals, using bottom-up research within corporate events and sectors where his team has expertise. The firm’s strategies are focused on compounding gains over the long-term.  The Paulson & Co. team includes experts in corporate restructurings and credit, investment banking, law, structured finance and specific industry sectors. Paulson encourages collaboration and idea sharing on his team. 

Paulson is super-rich and widely acclaimed for making $15 billion for his investors and $3.7 billion for himself in 2007.  On the 2012 Forbes 400 list, Guru John Paulson was ranked 36th richest.  His net worth is around $11.4 billion, as of September 2013. In 2012 Forbes ranked John Paulson as the 17th highest earning on a list of 40 hedge fund managers and traders, with earnings of $275 million for the year.

Paulson’s portfolio currently lists 87 stocks, eight of them new, with a total value of $15.56 billion, and a quarter-over-quarter turnover of 16%. The portfolio is heavily weighted with communication services at 19.8%, healthcare at 17.4% and ETF, options, preferred at 16.7%, as of Sept. 30, 2013.  The stocks bought by John Paulson have averaged a 12-month return of 244.97%, second only to Michael Dell at 276.25%.

Here’s an update on three gold companies in Paulson’s top-yield portfolio, as of Sept. 30, 2013.

Freeport-McMoRan Copper & Gold (FCX), Yield: 3.30%

Shares:  15,505,982

Value:  $512,938,000

Weightings:  3.3%

Up 10% over 12 months, Freeport-McMoRan Copper & Gold has a market cap of $38.94 billion; its shares were traded at around $37.79 with a P/E ratio of 13.70.  

The company is rated with one out of five stars for business predictability.

The GuruFocus analysis of the company shows three warning signs.

Guru Action:  As of Sept. 30, 2013, John Paulson gained 22.7% on his holding of 15,505,982 shares at an average price of $30.56 per share. 

Over three quarters of trading, he has averaged a gain of 8% on 15,505,982 shares bought at an average price of $34.61 per share.

Tracking historical share price, revenue and net income:

1388435740798.png

Gold Fields Ltd. (GFI), Yield: 2.30%

Shares:  6,529,748

Value:  $29,841,000

Weightings:  0.19%

Down 71% over 12 months, Gold Fields Ltd. has a market cap of $2.34 billion; its shares were traded at around $3.17. 

Incorporated in South Africa, Gold Fields Ltd. is engaged in gold mining and related activities including exploration, extraction, processing and smelting. The company's main product is gold bullion which is currently produced in South Africa, Ghana and Australia. It also produces copper/gold concentrate in Peru.

The company is not rated for business predictability.

The GuruFocus analysis of the company shows four good signs.

Guru Action:  As of Sept. 30, 2013, John Paulson lost 40.9% on his holding of 6,529,748 shares at an average price of $5.36 per share. 

Over 13 quarters of trading, he has averaged a loss of 68% on 26,050,000 shares bought at an average price of $9.77 per share.  Selling, he has averaged a loss of 74% on 19,520,252 shares at an average price of $11.98 per share. 

Tracking historical share price, revenue and net income:

1388436086292.png

Agnico Eagle Mines Ltd. (AEM), Yield: 3.30

Shares:  1,011,880

Value:  $26,784,000

Weightings:  0.17%

Down 50% over 12 months, Agnico Eagle Mines Ltd. has a market cap of $4.6 billion; its shares were traded at around $26.45 with a P/E ratio of 35.30.  

Incorporated in Ontario, Canada in 1972, Agnico Eagle Mines Ltd. is a gold producer.  The company explores for gold, as well as silver, copper, zinc, and lead. As of December 31, 2012, Agnico’s LaRonde mine had estimated, proven and probable mineral reserves that included approximately 4.2 million ounces of gold.

The company is rated one out of five stars for business predictability.

The GuruFocus analysis of the company shows five warning signs and four good signs.

Guru Action:  As of Sept. 30, 2013, John Paulson lost 6.7% on his holding of 1,011,880 shares at an average price of $28.56 per share. 

Over six quarters of trading, he has averaged a loss of 58% on 1,025,900 shares bought at an average price of $63.86 per share.  Paulson averaged a loss of 31% selling 14,020 shares at an average price of $38.67 per share. 

Tracking historical share price, revenue and net income:

1388436402347.png

Check out the rest John Paulson’s top yield stocks.

A much-admired philanthropist, John Paulson serves on numerous boards, including the Board of Trustees of New York University, Board of Trustees of the Central Park Conservancy, the Deans Advisory Board of the Harvard Business School, the Board of Directors of the 92nd Street Y, the Board of the Partnership for New York City and the Chairman’s Circle of the Metropolitan Museum of Art.  In 2012, Paulson pledged $100 million to the Central Park Conservancy. Just one of many large contributions, Paulson also donated $20 million to New York University in 2009.

Guru John Paulson received his MBA with high distinction from Harvard Business School in 1980. At Harvard, he was a Baker Scholar in the top 5% of his class. He graduated summa cum laude in Finance from New York University’s College of Business and Public Administration in 1978. Paulson started out as a general partner of Gruss Partners and as a managing director in mergers and acquisitions at Bear Stearns, prior to starting his firm in 1994.

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About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

Rating: 3.7/5 (3 votes)

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