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Holly LaFon
Holly LaFon
Articles (7846) 

Best Performing Guru of Past 6 Months Is... John Paulson?

Celebrated for his record payday in 2010, John Paulson has more recently been noted for the deterioration of his gold fund, wherein he lost 28% in the first quarter. This followed double-digit losses in his flagship funds, the Advantage Funds, in 2011 and 2012. But GuruFocus’ Score Board of Gurus suggests that the manager of the $18 billion hedge fund Paulson & Co. may be enjoying the beginning of a turnaround. His stock picks of the past six months have had the highest average gain of all the gurus, at 399.4%.

Paulson is followed distantly by First Eagle Funds, whose picks returned 110%, and Michael Price, whose stocks returned 106.6%.

John Paulson

All of Paulson’s new buys of the third quarter have posted gains from his average purchase price to date, save his smallest, a 0.052% portfolio position in Sibanye Gold Ltd. (NYSE:SBGL). His most profitable so far has been his 8.4% stake in MGIC Investment Corporation (NYSE:MTG). He purchased 17 million shares for $3.50 per share on average; the price has since climbed 78% to $6.19 on Tuesday.

MGIC Investment Corporation is the parent company of Mortgage Guarantee Insurance Corporation (NASDAQ:MGIC), a company offering mortgage insurance, risk management products and services and structured finance services. It has a market cap of almost $2.1 billion.

The company’s stock rose sharply at the end of February when MGIC announced that it had settled a dispute with Freddie Mac and had made progress toward resolving a legal dispute with Countrywide. The resolution, however, caused a spike in the company’s losses to $386.7 million, or $1.91 per share, from $135.3 million, or $0.67 per share, in the fourth quarter of 2011. The loss included $267.5 million related to the Freddie Mac settlement, and a $100 million increase in loss reserve estimates related to its Countrywide Financial dispute.

Revenue declined to $371.4 million, compared to $447 million the previous year. New insurance written rose to $7 billion, from $4.2 billion, and delinquent loans fell to 13.9% from 16.1%.

In the first quarter of 2013, MGIC reported a net loss of $72.9 million, compared to $19.6 million the previous year. Revenues were $269.2 million, compared to $379.7 million, and new insurance written was $6.5 billion, up from $4.2 billion. Delinquent loans declined to 10.91% from 12.83% the previous year.

MGIC Investment Corp’s long-term price, revenue and net income history:


GuruFocus gives MGIC four severe warning signs: an Altman Z-score of 0.37 which is in the distress zone signaling potential for bankruptcy a Piotroski F-score of 1 which implies poor business operations; per-share revenue in decline for the last five years; and operating margin in long-term decline at an average rate of 16.5% in five years.

His highest-gaining stock of the fourth quarter was Radian Group Inc. (RDN), which has climbed 87% on average since he purchased in the fourth quarter at an average price of $4.70 per share. After increasing his stake in the first quarter of 2013, Paulson owns 11.55 million shares, and the price has reached $12.96 on Tuesday.

Radian is another mortgage company. It insures and provides financial services to mortgage lenders and financial institutions under two segments – mortgage insurance and financial guaranty. Radian carries a $2.24 billion market cap.

Six other gurus initiated positions in Radian in the first quarter, including George Soros.

The company has been benefiting from higher mortgage demand, writing 69% more new mortgage insurance business written year over year in the first quarter. With only one quarter of positive net earnings in the past year, Radian’s CEO, S.A. Ibrahim said management is “positioning Radian for a return to operating profitability” due to strong new business volume, decreased delinquency inventory and new business outweighing its legacy mortgage insurance book.

GuruFocus warns that the company has an Altman Z-score of -0.03, which is in the distress zone implying bankruptcy possibility in the next two years. The company’s per-share revenue has also declined for the past five years.

As the company’s price reaches a three-year high, Radian has a P/B ratio of 2.34 which is close to a 10-year high and P/S of 2.50 which is close to a two-year high.

First Eagle Funds

First Eagle Funds, where legendary Jean-Marie Eveillard is senior adviser and member of the board of the trustees after overseeing funds for 30 years, has seen its picks of the last six months gain 110.16%. In that time period, the firm bought 162 stocks.

The firm’s top contributor was Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), which has gained 249% from the $3.55 price paid on average in the fourth quarter of 2012. The biopharmaceutical company’s price is $12.41 on Tuesday, and First Eagle holds 1,911,452 shares, amassed since the fourth quarter of 2009.

Vanda’s share price leapt in June on positive news for its treatment for Non-24, a “serious, rare and chronic circadian rhythm disorder that affects a majority of totally blind individuals who lack light perception and cannot entrain (synchronize) their master body clock to the 24-hour day,” for which there is currently no FDA-approved treatment. Results of a study showed that the drug, tamiselteon, can entrain the circadian clock, in Phase III studies.

Vanda’s long-term price, revenue and net income history:


Michael Price

The new buys of Michael Price, of MFP Investors LLC, are shining as well. Overall they have gained 106.6% on average over the past six months.

Price’s greatest new buy was Icahn Enterprises (NASDAQ:IEP), of which he bought 175,000 shares at $62 per share on average in the first quarter. The stock gained 29% from his purchase price, trading for $79.52 Tuesday. It was his second largest new purchase, behind Hess Corp. (NYSE:HES).

Icahn Enterprises is a holding company owned by fellow guru Carl Icahn. The Peter Lynch chart shows that this stock is recently undervalued:


In the first quarter, Icahn Enterprises registered $5.3 billion in revenue in the first quarter of 2013, increased from $2.7 billion the previous year. Net income reported was $277 million, or $2.50 per LP unit, compared to $49 million, of $0.48 per LP unit the previous year.

Icahn spoke favorably of the effects of his brand of activist investing in a company release: "Our performance this quarter in particular and over the past decade in general, highlights the fact that an activist strategy when properly implemented can greatly enhance value for allshareholders."

See more of gurus’ performance at the Score Board of Gurus.

Rating: 2.8/5 (8 votes)


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GuruFocus has detected 4 Warning Signs with MGIC Investment Corp $MTG.
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