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 in his 13F filing for the three months ended June 30 he established five new positions, exited six stocks and boosted or trimmed a number of other existing investments. Notable transactions included the addition of VMware Inc. (VMW, Financial) to the portfolio, an increase to the Horizon Therapeutics PLC (HZNP, Financial) stake and the sale of the SPDR Gold Shares ETF (GLD, Financial), DiDi Global Inc. (DIDIY, Financial) and Exxon Mobil Corp. (XOM, Financial) holdings.
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Paulson invested in 500,000 shares of VMware (VMW, Financial), allocating 2.81% of the equity portfolio to the position. During the quarter, the stock traded for an average price of $113.56 per share.
The Palo Alto, California-based cloud computing and virtualization company has a $49.71 billion market cap; its shares were trading around $117.96 on Monday with a price-earnings ratio of 31.71, a price-book ratio of 355.30 and a price-sales ratio of 3.80.
The GF Value Line suggests the stock is modestly undervalued currently based on historical ratios, past financial performance and analysts’ future earnings estimates.
GuruFocus rated VMware’s financial strength 4 out of 10. Although the company has issued new long-term debt over the past several years, it is manageable due to sufficient interest coverage. The Altman Z-Score of 1.70 also warns the company could be at risk of bankruptcy since assets are building up at a faster rate than revenue is growing. The return on invested capital also slightly surpasses the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability scored a 9 out of 10 rating. While the operating margin is in decline, VMware is supported by strong returns on equity, assets and capital that outperform a majority of competitors as well as a moderate Piotroski F-Score of 4 out of 9, meaning conditions are typical for a stable company. Despite recording consistent earnings and revenue growth, the predictability rank of five out of five stars is on watch. According to GuruFocus research, companies with this rank return an average of 12.1% annually over a 10-year period.
Of the gurus invested in VMware, Dodge & Cox has the largest stake with 6.65% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Chris Davis (Trades, Portfolio), John Hussman (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Louis Moore Bacon (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and several other gurus also own the stock.
The guru increased the Horizon Therapeutics (HZNP, Financial) stake by 10.42%, picking up 585,000 shares. The transaction had an impact of 2.30% on the equity portfolio. Shares traded for an average price of $94.87 each during the quarter.
Paulson now holds 6.19 million shares total, accounting for 24.38% of the equity portfolio and his largest holding. GuruFocus estimates he has gained 143.08% on the investment so far.
The biopharmaceutical company headquartered in Ireland, which focuses on developing medicines to treat rare and rheumatic diseases, has a market cap of $13.83 billion; its shares were trading around $602.16 on Monday with a price-earnings ratio of 18.53, a price-book ratio of 2.79 and a price-sales ratio of 3.72.
According to the GF Value Line, the stock is significantly undervalued currently.
Horizon Therapeutics’ financial strength and profitability were both rated 6 out of 10 by GuruFocus. Despite having a Sloan ratio that is indicative of poor earnings quality, the company is supported by adequate interest coverage and a high Altman Z-Score of 3.32. The ROIC also exceeds the WACC, indicating good value creation.
The company has strong margins and returns that outperform a majority of industry peers. Horizon Therapeutics also has a moderate Piotroski F-Score of 5 and a one-star predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.
With a 2.69% stake, Paulson is now the company’s largest guru shareholder. Other top guru investors of Horizon Therapeutics are Simons’ firm, Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
SPDR Gold Shares ETF
The investor sold out of his 1 million-share position in the SPDR Gold Shares ETF (GLD, Financial), impacting the equity portfolio by-5.56%. During the quarter, the stock traded for an average per-share price of $174.73.
GuruFocus says Paulson gained an estimated 45.59% on the short-lived investment.
The exchange-traded fund, which tracks the performance of the price of gold bullion, has a $54.85 billion market cap; its shares were trading around $161.88 on Monday.
The stock has fallen over 5% year to date.
The 14-day relative strength index of 41.31 indicates the stock is neither overbought nor oversold.
Other gurus with positions in the ETF include First Eagle Investment (Trades, Portfolio), Dalio, David Einhorn (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Hussman.
Paulson exited his 33.15 million-share stake in DiDi Global (DIDIY, Financial), which had an impact of -2.55% on the equity portfolio. The stock traded for an average price of $2.19 per share during the quarter.
GuruFocus data indicates the firm lost an estimated 69.31% on the investment over its lifetime.
The Chinese company, which offers ride-hailing services, has a market cap of $12.67 billion; its shares were trading around $2.60 on Monday with a price-book ratio of 0.75 and a price-sales ratio of 0.18.
The stock has tumbled around 50% year to date.
GuruFocus rated DiDi’s financial strength 6 out of 10 despite having a low Altman Z-Score of 1.32 that warns it could be at risk of bankruptcy.
The company’s profitability did not fare as well, scoring a 2 out of 10 rating on the back of negative margins and returns that are underperforming versus competitors. DiDi also has a moderate Piotroski F-Score of 4.
No gurus currently hold U.S.-listed shares of DiDi.
The guru closed his 1 million-share holding in Exxon Mobil (XOM, Financial). The transaction had an impact of -2.54% on the equity portfolio. During the quarter, shares traded for an average price of $90.08 each.
GuruFocus found he gained an estimated 1.87% on the investment, which was established in the fourth quarter of 2020.
The integrated oil and gas giant based in Irving, Texas has a $420.51 billion market cap; its shares were trading around $100.46 on Monday with a price-earnings ratio of 11.05, a price-book ratio of 2.37 and a price-sales ratio of 1.23.
Based on the GF Value Line, the stock appears to be fairly valued currently.
Exxon Mobil’s financial strength was rated 8 out of 10 by GuruFocus. In addition to adequate interest coverage, the Altman Z-Score of 4.39 indicates the company is in good standing. Value is also being created since the ROIC eclipses the WACC.
The company’s profitability scored a 7 out of 10 rating due to strong margins and returns that are outperforming versus industry peers. Exxon Mobil also has a high Piotroski F-Score of 8, indicating operations are healthy, and a one-star predictability rank.
First Eagle is Exxon Mobil’s largest guru shareholder with a 0.48% stake. Simons’ firm, Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Fisher and Dalio also have large holdings in the company.
Additional trades and portfolio composition
During the quarter, Paulson also entered new positions in Coherent Inc. (COHR, Financial), ironSource Ltd. (IS, Financial), CDK Global Inc. (CDK, Financial) and Sierra Oncology Inc. (SRRA, Financial) as well as sold out of the VanEck Oil Services ETF (OIH, Financial).
The guru's $2.03 billion equity portfolio, which is composed of32 stocks, is most heavily invested in the health care sector with a weight of 36.52%, followed by the basic materials space with 26.63% exposure.