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John Paulson’s Performance Hindered By Kinross Gold Corporation and Schering-Plough Corporation, Helped By Boston Scientific Corporation, Philip Morris International, Petro Canada

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(GuruFocus, June 23, 2009) John Paulson made a name for himself by betting against the US housing bubble. The $3.7 billion he made during the financial crisis of 2008 attracted him tens of billion of dollars more. Asset under his management ballooned to $26 billion dollars. Repeating the past lucrative performance may prove to be hard, now that he has far more asset than before.

While GuruFocus does not have his short and derivatives, we do track the $9.36 billion long equity position, and based on that portfolio and assuming no changes, his portfolio has gained 3.4% since the beginning of the of the quarter, underperforming S&P 500 index’s gain of 10.4%.

The primary reason for the lagging in performance is John Paulson’s heavy holding in gold and gold mining companies. Here is a role call of his top holdings:

1. Gold Holdings: Spider Gold Shares, Gold Miners ETF, and Kinross Gold Corporation

Paulson’s gold holdings include Spider Gold Shares ETF (GLD), Market Vectors – Gold Miners ETF (GDX), and Kinross Gold Corporation (KGC),

Spider Gold Shares has a market cap of $16.25 billion; its shares were traded at around $90.92 and it is up 0.7% for the quarter. Paulson has put 30.37% of his long position in this one ETF and he bought his 31.5 million shares of GLD in 1Q09.

Market Vectors – Gold Miners ETF has a market cap of $447.8 million; its shares were traded at around $37.33 and it is up 1.2% for the quarter. Paulson put 6.81% in this gold miners ETF, he bought his 17.3 million shares of GDX in 1Q09.

Kinross Gold Corporation is a gold miner company. Kinross Gold Corp. has a market cap of $12.07 billion; its shares were traded at around $17.37 with a P/E ratio of 41.4 and P/S ratio of 7.4. The dividend yield of Kinross Gold Corp. stocks is 0.5%. Kinross Gold Corp. had an annual average earning growth of 12% over the past 5 years. Paulson put 5.87% of his stock money in this one company. He actually had about 30 million shares of KGC since 4Q07.

So far Paulson’s betting on Gold has not paid off. It took a couple of years for his betting housing collapse to pay off, perhaps it take equal amount of time to this trade to play out.

2. Boston Scientific Corporation (BSX)

Boston Scientific Corporation is a developer, manufacturer and marketer of minimally invasive medical devices. Boston Scientific Corp. has a market cap of $14.33 billion; its shares were traded at around $9.51 with a P/E ratio of 17.6 and P/S ratio of 1.7. Boston Scientific Corp. had an annual average earning growth of 11.6% over the past 10 years. GuruFocus rated Boston Scientific Corp. the business predictability rank of 3.5-star.

Paulson had 62 million shares of BSX in 4Q07 and he upped it to 99 million shares by 4Q09. The stock is up 19.6% for the quarter, giving Paulson a break in terms of performance and he got quite a bit of money into the stock, 8.42% of his equity portfolio.

3. Philip Morris International (PM)

Philip Morris International is the leading international tobacco company with products sold in over 160 countries. They own 7 of the top 15 brands in the world and have a strong mix of international and local products that seek to appeal to a wide array of adult smokers. Philip Morris International has a market cap of $81.33 billion; its shares were traded at around $41.46 with a P/E ratio of 13.1 and P/S ratio of 1.3. The dividend yield of Philip Morris International stocks is 5.2%.

Paulson had 3.42% of his equity portfolio invested in 9.0 million shares of PM. He had 7.0 million in the middle of 2008 and upped to 9.0 million by 4Q08. The stock is up 16.5% for the quarter.

4. Petro Canada (PCZ)

Petro Canada is a major Canadian oil and gas company. Petro Canada has a market cap of $17.65 billion; its shares were traded at around $36.39 with a P/E ratio of 5.8 and P/S ratio of 0.7. The dividend yield of Petro Canada stocks is 2.2%.

Paulson had 2.96% of his equity portfolio invested in 10.3 million shares of PCZ, which he acquired during 1Q09. The stock is up 35.4% for the quarter.

5. Schering-Plough Corporation (SGP)

Schering-Plough Corporation and its subsidiaries are engaged in the discovery, development, manufacturing, and marketing of pharmaceutical products worldwide. ScheringPlough Corp. has a market cap of $38.07 billion; its shares were traded at around $23.41 with a P/E ratio of 13 and P/S ratio of 2. The dividend yield of ScheringPlough Corp. stocks is 1.1%.

Paulson had 2.26% of his equity portfolio invested in SGP. The long position is part of the risk arbitrage trade on the Merck and Schering-Plough deal, which we analyzed before in this article. SGP is actually down 0.6% for the quarter. As any risk arbitrage trade goes, hopefully the deal get closed and Paulson will eventually get his payback.




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