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James Li
James Li
Articles (1282)  | Author's Website |

John Paulson’s Top 5 Buys in the 3rd Quarter

Merger arbitrage guru releases portfolio

December 05, 2019 | About:

John Paulson (Trades, Portfolio), manager of Paulson & Co., disclosed in a quarterly portfolio report that his firm’s top five buys for the third quarter included new positions in Callon Petroleum Co. (NYSE:CPE) and Presidio Inc. (NASDAQ:PSDO) as well as boosts in the Allergan PLC (AGN), Altaba Inc. (NASDAQ:AABA) and Spark Therapeutics Inc. (NASDAQ:ONCE) holdings.

Paulson, a former mergers and acquisitions banker, established Paulson & Co. as a merger arbitrage hedge fund, seeking to make money when one public company announces plans to take over another. The guru developed a merger arbitrage checklist defining key criteria for successful mergers, which include definitive agreements, strategic rationale, no financing and due diligence conditions, solidly-performing target, reasonable valuation and limited regulatory risk.

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As of quarter-end, the firm’s $4.99 billion equity portfolio contains 45 stocks, of which three represent new holdings. The top three sectors in terms of weight are health care, communication services and materials.

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Callon

Paulson's firm purchased 21,593,523 shares of Callon, giving the stake 1.88% weight in the equity portfolio. Shares averaged $4.89 during the quarter.

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According to GuruFocus Real-Time Picks, a Premium feature, Paulson disclosed the trade on Sept. 9. Shares of the Houston-based energy company traded at $4.71 that day.

GuruFocus ranks Callon’s profitability 6 out of 10: Although the company’s operating margin outperforms 87.96% of global competitors, its revenue has declined approximately 5% per year on average over the past five years based on loglinear regression.

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Presidio

The guru's firm purchased 2.65 million shares of Presidio, giving the stake 0.90% weight in the equity portfolio. Shares averaged $14.91 during the quarter.

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The New York-based company operates three information technology business segments: Digital Infrastructure, Cloud and Security Solutions. GuruFocus ranks Presidio’s financial strength 4.3 out of 10: Although the company has a strong Piotroski F-score of 8, its interest coverage and debt ratios are underperforming over 86% of global competitors.

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Allergan

The firm purchased 682,670 shares of Allergan, increasing the position 30.35% and the equity portfolio 2.30%. Shares averaged $162.97 during the quarter.

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The Dublin, Ireland-based company manufactures drugs for aesthetics, ophthalmology, women’s health, gastrointestinal issues and the central nervous system. GuruFocus ranks Allergan’s financial strength 4 out of 10: Although the company has a solid Piotroski F-score of 6, it has a weak Altman Z-score of 0.88 and debt ratios that underperform 61.10% of global competitors.

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Other gurus with holdings in Allergan include Daniel Loeb (Trades, Portfolio) and Jim Simons' Renaissance Technologies.

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Altaba

The firm purchased 5,705,559 shares of Altaba, increasing the stake 300.27% and the equity portfolio 2.23%. Shares averaged $66.23 during the quarter.

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According to GuruFocus, the New York-based investment holding company has little long-term debt, suggesting good financial strength.

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Spark

The firm purchased 679,859 shares of Spark, increasing the holding 89.71% and the equity portfolio 1.32%. Shares averaged $100.13 during the quarter.

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The Philadelphia-based company focuses on gene therapy and orphan disease treatments. According to GuruFocus, Spark’s cash-to-debt and debt-to-equity ratios underperform over 66% of global competitors, suggesting moderately low financial strength.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial 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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