John Paulson (Trades, Portfolio), head of investment firm Paulson & Co., disclosed his third-quarter portfolio earlier this month.
With the long-term goal of capital preservation, above-average returns and low correlation to the market, the activist guru's New York-based firm specializes in event-driven arbitrage strategies, including merger arbitrage, bankruptcy reorganizations and distressed credit.
Sticking to this strategy, the investor revealed he established two new positions during the quarter, exited four stocks and added to or trimmed a number of other existing investments. Notable transactions included the addition of Cloudera Inc. (CLDR, Financial) to the portfolio, the divestment of the Dish Network Corp. (DISH, Financial) holding and reductions to the Horizon Therapeutics PLC (HZNP, Financial), Royal Dutch Shell PLC (RDS.A, Financial) and Kansas City Southern (KSU, Financial) stakes.
Cloudera
Paulson entered a 4.6 million-share stake in Cloudera (CLDR, Financial), allocating it to 2.09% of the equity portfolio. During the quarter, the stock traded for an average price of $15.87 per share.
The Santa Clara, California-based software company, which provides a cloud-based platform for data engineering, data warehousing, machine learning and analytics, has a $4.74 billion market cap; its shares were trading around $15.99 on Tuesday with a price-book ratio of 4.26 and a price-sales ratio of 5.3.
The GF Value Line suggests the stock is significantly overvalued based on the company’s historical ratios, past performance and future earnings projections.
GuruFocus rated Cloudera’s financial strength 4 out of 10. As a result of assets building up at a faster pace than revenue is growing, the low Altman Z-Score of 1.46 warns the company could be at risk of bankruptcy.
The company’s profitability scored a 3 out of 10 rating. Although the operating margin is expanding, its returns on equity, assets and capital are negative and underperform a majority of competitors. Cloudera has a moderate Piotroski F-Score of 6 out of 9, however, indicating that conditions are typical for a stable company. Revenue per share has also declined in recent years.
Of the gurus invested in Cloudera, Carl Icahn (Trades, Portfolio) has the largest stake with 17.67% of its outstanding shares. Mario Gabelli (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Pioneer Investments and Baillie Gifford (Trades, Portfolio) also own the stock.
Dish Network
After several quarters of reductions, the investor dumped all 3.3 million remaining shares of Dish Network (DISH, Financial). The trade had an impact of -3.34% on the equity portfolio. Shares traded for an average price of $42.61 each during the quarter.
GuruFocus estimates he lost 33.02% on the investment, which was established in the first quarter of 2017 and was previously his eighth-largest holding.
Headquartered in Englewood, Colorado, the satellite television provider has a market cap of $16.87 billion; its shares were trading around $31.55 on Tuesday with a price-earnings ratio of 7.64, a price-book ratio of 1.13 and a price-sales ratio of 1.12.
According to the GF Value Line, the stock is modestly undervalued currently.
Dish Network’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has sufficient interest coverage, the Altman Z-Score of 1.49 warns it could be in danger of bankruptcy since revenue per share has declined in recent years.
The company’s profitability fared better, scoring a 7 out 10 rating on the back of an expanding operating margin and strong returns that outperform a majority of industry peers. Dish also has a moderate Piotroski F-Score of 6 and a predictability rank of one out of five stars. GuruFocus says companies with this rank return an average of 1.1% annually over a 10-year period.
With a 7.18% stake, Dodge & Cox has the largest position in Dish Network. Other top guru shareholders are Gabelli, Alan Fournier (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Pioneer Investments, Joel Greenblatt (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Murray Stahl (Trades, Portfolio).
Horizon Therapeutics
Impacting the equity portfolio by -4.08%, the guru curbed the Horizon Therapeutics (HZNP, Financial) stake by 22.8%, selling 1.8 million shares. The stock traded for an average per-share price of $103.79 during the quarter.
He now holds 6.17 million shares total, which represents 19.25% of the equity portfolio and remains his second-largest holding. GuruFocus data shows Paulson has gained 285.28% on the investment since the second quarter of 2017.
The Irish biopharmaceutical company, which focuses on developing medicines to treat rare and rheumatic diseases, has a $23.41 billion market cap; its shares were trading around $103.23 on Tuesday with a price-earnings ratio of 44.5, a price-book ratio of 5.27 and a price-sales ratio of 8.17.
Based on the GF Value Line, the stock appears to be modestly overvalued.
GuruFocus rated Horizon Therapeutics’ financial strength 5 out of 10. In addition to adequate interest coverage, the company has a robust Altman Z-Score of 4.14 that indicates it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability scored a 4 out of 10 rating despite having strong margins and returns that top a majority of competitors. Horizon also has a moderate Piotroski F-Score of 5 as well as a one-star predictability rank.
Paulson has a 2.72% stake in Horizon Therapeutics, making him the largest guru shareholder. Simons’ firm, the Vanguard Health Care Fund (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments, Greenblatt and Ray Dalio (Trades, Portfolio) also have positions in the stock.
Royal Dutch Shell
Paulson cut his Royal Dutch Shell (RDS.A, Financial) position by 50.84%, selling 1.03 million Class A shares. The transaction had an impact of -1% on the equity portfolio. During the quarter, the stock traded for an average price of $40.36 per share.
The investor now holds 1 million shares total, accounting for 1.27% of the equity portfolio. GuruFocus says he has gained an estimated 3.58% on the investment since establishing it in the second quarter.
The Netherlands-based oil and gas company has a market cap of $161.21 billion; its Class A shares were trading around $41.67 on Tuesday with a price-earnings ratio of 38.94, a price-book ratio of 1.02 and a price-sales ratio of 0.76.
The GF Value Line suggests the stock is fairly valued currently.
Weighed down by a low cash-debt ratio and weak interest coverage, Royal Dutch Shell’s financial strength was rated 4 out of 10 by GuruFocus. The Altman Z-Score of 1.63 warns the company could be at risk of bankruptcy if it does not improve its liquidity. The WACC also eclipses the ROIC, implying it struggles to create value.
The company’s profitability scored a 6 out of 10 rating, driven by margins and returns that outperform over half of its industry peers, a high Piotroski F-Score of 8, indicating operations are healthy, and a one-star business predictability rank. Revenue per share has also seen a decline in recent years.
Ken Fisher (Trades, Portfolio) is Royal Dutch Shell’s largest guru shareholder with a 0.47% stake. Other guru investors with significant holdings include Hotchkis & Wiley, Richard Pzena (Trades, Portfolio) and Simons’ firm.
Kansas City Southern
With an impact of -0.95% on the equity portfolio, the guru slashed his Kansas City Southern (KSU, Financial) holding by 82.35%, selling 140,000 shares. Shares traded for an average price of $278.75 each during the quarter.
Paulson now holds a total of 30,000 shares, giving it 0.23% space in the equity portfolio. GuruFocus data shows he has lost an estimated 2.22% so far on the investment. The company is in the process of being acquired by Canadian Pacific Railway Ltd. (TSX:CP, Financial).
The railroad company, which is headquartered in Kansas City, Missouri, has a $26.62 billion market cap; its shares were trading around $292.59 on Tuesday with a price-earnings ratio of 286.86, a price-book ratio of 6.83 and a price-sales ratio of 9.23.
According to the GF Value Line, the stock is significantly overvalued currently.
GuruFocus rated Kansas City Southern’s financial strength 4 out of 10 despite having adequate interest coverage and a high Altman Z-Score of 3.3. The WACC exceeds the ROIC, however, so the company is struggling to create value.
The company’s profitability fared much better, scoring a 9 out of 10 rating on the back of operating margin expansion. Its returns, however, are underperforming versus competitors. Kansas City Southern also has a high Piotroski F-Score of 7, but the five-star predictability rank is on watch even though it has recorded consistent earnings and revenue growth. GuruFocus says companies with this rank return an average of 12.1% annually.
With a 2.41% stake, Bill Gates (Trades, Portfolio)’ foundation trust is the company’s largest guru shareholder. Pioneer Investments, Jones, Grantham, Fisher, Louis Moore Bacon (Trades, Portfolio), Michael Price (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Gabelli and Prem Watsa (Trades, Portfolio), among others, also own the stock.
Additional trades and portfolio composition
During the quarter, Paulson also entered a new position in Stamps.com Inc. (STMP, Financial), added to his holdings of Perpetua Resources Corp. (PPTA, Financial) and DiDi Global Inc. (DIDI, Financial), while trimming his stakes in Occidental Petroleum Corp. (OXY, Financial), Viatris Inc. (VTRS, Financial) and BP PLC (BP, Financial), among others.
The guru's $3.51 billion equity portfolio, which is composed of 38 stocks, is most heavily invested in the health care sector with a weight of 43.77%, followed by the basic materials space with 19.24% representation.
