John Paulson (Trades, Portfolio), founder of Paulson & Co., has revealed his portfolio for the second quarter of the year. Top trades include selling out of his position in SPDR Gold Shares ETF (GLD, Financial) and dissolving his Alexion Pharmaceuticals Inc. (ALXN), new buys into DiDi Global Inc. (DIDI, Financial) and APA Corp. (APA, Financial) and a reduction in his Viatris Inc. (VTRS, Financial) position.
Paulson, a former mergers and acquisitions banker, established his firm as a merger arbitrage hedge fund manager, seeking to make money from situations when one public company announces plans to take over another. Merger arbitrage hedge funds primarily study equity markets, but they also research the market for credit default swaps, a form of insurance that starts paying out as soon as a credit security falls in value.
Portfolio overview
At the end of the quarter, Paulson’s portfolio contained 40 stocks with 12 new holdings. It was valued at $4.19 billion and has seen a turnover rate of 17%. Top holdings include Bausch Health Companies Inc. (BHC, Financial), Horizon Therapeutics PLC (HZNP, Financial), BrightSphere Investment Group Inc. (BSIG, Financial), Novagold Resources Inc. (NG, Financial) and DiDi Global.
The top sectors represented are health care (41.02%), basica materials (19.05%) and energy (13.01%).
SPDR Gold Shares ETF
Paulson sold off the remainder of his SPDR Gold Shares ETF (GLD, Financial) position after years of reductions. The remaining 1.89 million shares were sold at an average price of $169.76 throughout the quarter. Overall, the sale had a -6.96% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 47.85%.
The gold exchange-traded fund seemed to be on a recovery path after falling to a low in 2015, with shares prices peaking just shy of $200 this time last year. However, prices have been on the decline once again and gold has failed to perform compared to its S&P 500 counterpart. On Aug. 20, the ETF was trading at a price of $166.74 per share for a year-to-date loss of 6.59%.
Top gurus who still maintain shares in the SPDR Gold Shares ETF (GLD, Financial) include First Eagle Investment (Trades, Portfolio), Ray Dalio (Trades, Portfolio), David Einhorn (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Mario Gabelli (Trades, Portfolio).
Alexion Pharmaceuticals
The guru’s Alexion Pharmaceuticals (ALXN, Financial) position was dissolved during the quarter with the finalization of its acquisition by AstraZeneca (AZN, Financial). The acquisition, completed on July 21 of this year and valued at $39 billion, was expected to give $60 and 2.1243 shares of AstraZeneca for each share of Alexion. GuruFocus estimates Paulson gained 8.22% throughout the lifetime of the holding.
Alexion Pharmaceuticals specializes in developing and marketing drugs for rare, life-threatening medical conditions. Its blockbuster product, Soliris, is approved for paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (aHUS), generalized myasthenia gravis (gMG), and neuromyelitis optica spectrum disorder (NMOSD). Next-generation Ultomiris is approved in PNH and aHUS. Strensiq and Kanuma target ultra rare metabolic diseases. Alexion's pipeline targets rare diseases with high unmet need in hematology, nephrology, metabolic diseases, neurology, cardiology, and other areas.
“I am delighted to be working alongside my new colleagues at Alexion where we will continue to discover, develop and deliver medicines that change the lives of people suffering from rare diseases. We look forward to also applying Alexion’s complement-biology platform across areas of AstraZeneca’s broader early stage pipeline and, significantly, to the extraordinary opportunity to extend existing and future rare disease medicines to patients in many countries where AstraZeneca already has a strong presence,” incoming AstraZeneca CEO Marc Dunoyer said.
DiDi Global
Paulson fired up a new holding in DiDi Global (DIDI, Financial) with the purchase of 11.08 million shares. Throughout the quarter, the DiDi shares traded at an average price of $14.14. The purchase had a 3.74% impact on the guru’s equity portfolio and GuruFocus estimates the holding has lost 47.86% since it was purchased.
DiDi Global is a mobility technology platform. It is building four key components of its platform that work together to improve the consumer experience: shared mobility, auto solutions, electric mobility and autonomous driving. It is a go-to brand in China for shared mobility, providing consumers with a range of safe, affordable and convenient mobility services, including ride-hailing, taxi-hailing, chauffeur, hitch and other forms of shared mobility.
As of Aug. 20, the stock was trading at $7.44 per share with a market cap of $35.88 billion. Share prices have fallen off dramatically for the company after increased scrutinization from the Chinese government sent foreign listings on a downward spiral.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rank of 1 out of 10. There are currently no severe warning signs, but a medium warning sign is issued for a low tax rate that may affect earnings. The company has struggled to reach profitability with a return on invested capital that has consistently been negative over the last several years.
DiDi Global (DIDI, Financial) is also held by Chris Davis (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), George Soros (Trades, Portfolio), Chase Coleman (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Viatris
Viatris (VTRS, Financial) was slashed in the guru's portfolio by 70.86% with the sale of 8.13 million shares. The shares traded at an average price of $14.46 during the quarter, landing the holding at a total estimated loss of 10.23%. The sale had a -2.61% on the equity portfolio overall.
Viatris was formed in 2020 through the combination of Mylan and Upjohn, a legacy division of Pfizer. By integrating the strengths of these two companies, including a global workforce of approximately 40,000 employees, the company aims to deliver increased access to affordable, quality medicines for patients worldwide.
The stock was trading at $14.69 per share with a market cap of $17.76 billion on Aug. 20. According to the GF Value Line, the stock is trading at a fairly valued rating.
GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 10 out of 10. There are currently four severe warning signs issued, including poor financial strength and declining revenue per share. An Altman Z-Score of 0.64 places the company at a higher risk of bankruptcy with net income decreasing consistently since 2018.
The Vanguard Health Care Fund (Trades, Portfolio), Chris Davis (Trades, Portfolio), Pioneer Investments, Jeremy Grantham (Trades, Portfolio) and Simons' firm also maintain positions in Viatris (VTRS, Financial).
APA
Another new holding was established by Paulson in APA (APA, Financial) for the first time since 2010. The purchase of 4 million shares at an average price of $20.48 throughout the quarter had a 2.07% impact on the portfolio. With share prices falling, GuruFocus estimates the holding has lost 13.18% since it was purchased.
APA is an independent exploration and production company. It operates primarily in the U.S., Egypt, the North Sea and Suriname. At year-end 2020, proved reserves totaled 874 million barrels of oil equivalent, with net reported production of 440 mboe/d (66% of which was oil and natural gas liquids, with the remainder comprising natural gas).
On Aug. 20, the stock was trading at $16.08 per share with a market cap of $6.08 billion. The GF Value Line shows the stock trading at a modestly undervalued rating.
GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 10 out of 10. There are currently five severe warning signs issued, including new long-term debt and declining revenue per share. The company’s cash-to-debt ratio of 0.14 ranks it worse than 71.67% of the industry as cash levels have fallen close to a 10-year low.
Other top guru shareholders in APA (APA, Financial) include Hotchkis & Wiley, Dodge & Cox, Bill Nygren (Trades, Portfolio), Simons' firm and David Tepper (Trades, Portfolio).
