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James Li
James Li
Articles (1326)  | 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.


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.



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.


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.



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.


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.



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.


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.


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



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.


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



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.


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.


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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