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James Li
James Li
Articles (793)  | Author's Website |

John Paulson’s Top 5 Buys in the 1st Quarter

Merger-arbitrage guru also keeps trimming International Seaways holding

John Paulson (Trades, Portfolio), president and portfolio manager of Paulson & Co., disclosed last week his top five buys for the first quarter were Celgene Corp. (NASDAQ:CELG), Takeda Pharmaceutical Co. Ltd. (NYSE:TAK), BrightSphere Investment Group PLC (NYSE:BSIG), WellCare Health Plans Inc. (NYSE:WCG) and Centene Corp. (NYSE:CNC). The merger-arbitrage guru also continued reducing his position in International Seaways Inc. (NYSE:INSW).

Managing a portfolio of 53 stocks, Paulson seeks to achieve capital where one company announces plans to acquire a second company. While merger arbitrage hedge funds primarily study equity markets, such funds also search the market for credit default swaps, a form of insurance that starts paying out as soon as a credit security falls in value.

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Celgene

Paulson purchased 3.3 million shares of Celgene, giving the position 6.78% weight in his equity portfolio. Shares of the Summit, New Jersey-based drug manufacturer averaged $87.12 during the quarter.

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CNBC columnist Jeff Cox reported on Tuesday that according to an analysis from Goldman Sachs Group Inc. (NYSE:GS), investors who bought the most-favored stocks among hedge funds have seen high returns. Such companies include Celgene and FANNG components like Facebook Inc. (NASDAQ:FB), Microsoft Corp. (NASDAQ:MSFT) and new Berkshire Hathaway Inc. (NYSE:BRK.A)(BRK.B) holding Amazon.com Inc. (NASDAQ:AMZN).

GuruFocus’ “Most Broadly Held” portfolio has returned an annualized 15.25% return over the past 10 years, outperforming the Standard & Poor’s 500 Index’s annualized return of 12.34% over the same period.

Other gurus riding Celgene’s high profitability rank of 9 include David Abrams (Trades, Portfolio), Seth Klarman (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio).

Takeda Pharmaceuticals

Paulson purchased 13,244,711 shares of Takeda Pharmaceuticals, giving the position 5.88% equity portfolio space. Shares averaged $20.07 during the quarter.

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GuruFocus ranks the Japanese drug manufacturer’s profitability 6 out of 10: Even though the company’s three-year revenue decline rate of 0.1% underperforms 70.68% of global competitors, Takeda’s operating margin of 11.45% is outperforming 68.79% of global competitors.

Brightsphere Investment Group

Paulson added 14,790,038 shares of Brightsphere Investment Group, increasing the position 283.85% and his equity portfolio 4.37%. Shares averaged $12.88 during the quarter.

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GuruFocus ranks the London-based asset management company’s profitability 7 out of 10: Even though the three-year revenue growth rate underperforms 63.94% of global competitors, Brightsphere has a strong Piotroski F-score of 6 and a return on assets that outperforms 81.20% of global competitors.

Centene and WellCare

Paulson purchased 1,558,060 shares of Centene and 314,900 shares of WellCare, giving 1.80% equity portfolio space to the former and 1.85% equity portfolio space to the latter. Shares of Centene averaged $60.76 during the quarter, while shares of WellCare averaged $279.65.

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On March 27, the two companies entered into a definitive agreement in which Centene will acquire the shares of WellCare for $305.39 per share, consisting of 3.38 common shares of Centene and $120 in cash.

Guru continues trimming International Seaways

Having sold 243,800 shares of International Seaways during the prior quarter, Paulson sold 840,300 additional shares during the first quarter, reducing the position 29.58%. Shares averaged $17.67 during the March quarter.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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