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John Paulson Axes Discovery, Buys Perpetua Resources

- By Graham Griffin

John Paulson (Trades, Portfolio), founder of Paulson & Co., has revealed his portfolio for the first quarter of 2021. Major trades include selling out of his positions in Discovery Inc. (NASDAQ:DISCK) and ViacomCBS Inc. (NASDAQ:VIAC), an addition to his Alexion Pharmaceuticals Inc. (NASDAQ:ALXN) holding, a reduction in his Takeda Pharmaceutical Co. Ltd. (NYSE:TAK) position and a new buy into Perpetua Resources Corp. (NASDAQ:PPTA).


Paulson, a former mergers and acquisitions banker, established his firm as a merger arbitrage hedge fund manager, seeking to make money from situations when one public company announces plans to take over another. Merger arbitrage hedge funds primarily study equity markets, but they also research the market for credit default swaps, a form of insurance that starts paying out as soon as a credit security falls in value.

Portfolio overview

At the end of the quarter, Paulson's portfolio contained 36 stocks, with three new holdings. It was valued at $4.35 billion and has seen a turnover rate of 12%. Top holdings include Bausch Health Companies Inc. (NYSE:BHC), Horizon Therapeutics PLC (NASDAQ:HZNP), BrightSphere Investment Group Inc. (NYSE:BSIG), SPDR Gold Shares ETF (GLD) and Alexion Pharmaceuticals.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

By weight, the top three sectors represented are health care (51.70%), basic materials (18.62%) and financial services (9.36%).

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Discovery

The first quarter saw Paulson sell out of his Discovery (DSCK) position after holding shares of the company for four years. The guru sold his remaining 6.90 million shares during the quarter at an average price of $42.38. Overall, the sale had a -4.69% impact on the portfolio and GuruFocus estimates the total gain of the holding at 50.16%.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Discovery is one of the largest global media providers with over 2 billion cumulative subscribers in over 220 countries. Its three traditional networks (Discovery, TLC and Animal Planet) each reach over 84 million U.S. households and more than 200 million international subscribers. The top two networks (HGTV and Food Network) acquired in the Scripps transaction are available in more than 87 million households in the U.S. The international segment consists of national and pan-regional networks over 294 unique distribution feeds in 50 languages.

On May 25, the stock was trading at $28.54 per share with a market cap of $15.09 billion. According to the GF Value Line, the stock is trading at a fair value rating.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 9 out of 10. The company shows three severe warning signs issued for assets growing faster than revenue, a declining operating margin and an Altman Z-Score of 1.42 placing the company in the distress column. The strong profitability rank is propped up by net and operating margins that rank the company well above 70% of competitors each.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Alexion Pharmaceuticals

One of the few holdings to get a boost in the portfolio was Alexion Pharmaceuticals (NASDAQ:ALXN). The guru purchased an additional 1.15 million holdings to grow the holding by 460%. Throughout the quarter, the shares traded at an average price of $154.75. GuruFocus estimates the total gain of the holding at 11.17% and the purchase had a 4.04% impact on the portfolio overall.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Alexion Pharmaceuticals specializes in developing and marketing drugs for rare, life-threatening medical conditions. Its blockbuster product, Soliris, is approved for paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (aHUS), generalized myasthenia gravis (gMG) and neuromyelitis optica spectrum disorder (NMOSD). Next-generation Ultomiris is approved in PNH and aHUS. Strensiq and Kanuma target ultra rare metabolic diseases. Alexion's pipeline targets rare diseases with high unmet need in hematology, nephrology, metabolic diseases, neurology, cardiology and other areas.

As of May 25, the stock was trading at $176.91 per share with a market cap of $39.07 billion. The GF Value Line shows the shares trading at a fair value rating.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 10 out of 10. There are currently no severe warning signs issued for the company. Despite the solid financial strength rating, the company's cash-to-debt ratio of 1.28 ranks it lower than 80.57% of competitors.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Perpetua Resources

Pualson's purchase into Perpetua Resources (NASDAQ:PPTA) was one of three new buys for the first quarter. He bought 20.93 million shares to establish the holding that traded at an average price of $7.69 throughout the quarter. Paulson has gained an estimated 6.50% on the new purchase and it had an overall impact of 3.67% on the equity portfolio.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Perpetua Resources is focused on the exploration, site restoration and redevelopment of gold-antimony-silver deposits in the Stibnite-Yellow Pine district of central Idaho that are encompassed by the Stibnite Gold Project. The Project is one of the highest-grade, open-pit gold deposits in the United States and is designed to apply a modern, responsible mining approach to restore an abandoned mine site and produce both gold and the only mined source of antimony in the United States.

The stock was trading at $8.19 per share with a market cap of $419.99 million on May 25. There is not currently enough data for the GF Value Line or Peter Lynch chart to be displayed. The share price fell off sharply after its debut, but has started to make small recovery steps.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rank of 1 out of 10. There are currently two severe warning signs issued for the company for a low Piotroski F-Score and a Sloan ratio indicating poor quality of earnings. The company has seen the weighted average cost of capital increasingly exceed the return on invested capital over the last decade.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Takeda Pharmaceutical

The first quarter also saw Paulson cut back his Takeda Pharmaceutical (NYSE:TAK) holding by 58.15%. The guru sold 6.56 million shares that traded at an average price of $17.99 during the quarter. Overall, the sale had a -3.11% impact and GuruFocus estimates the total loss of the holding at 11.88%.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Takeda Pharmaceutical is Japan's largest pharmaceutical company, with revenue of 3.3 trillion Japanese yen ($30.3 billion) in 2019. The company's five core therapeutic areas are oncology, gastroenterology, neuroscience, rare diseases and plasma-derived therapies, which account for more than 70% of revenue. Its geographic footprint is well diversified, with 50% derived from the U.S., 20% from Japan and 20% from Europe and Canada.

On May 25, the stock was trading at $17.15 per share with a market cap of $54.07 billion. The shares are trading at a fair value rating according to the GF Value Line.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 10 out of 10. There are currently three severe warning signs issued for declining revenue per share, poor financial strength and an Altman Z-Score of 1.12 placing the company in the distress column. The company took quite a significant hit to net income in 2020, but seems to have recovered moving into 2021.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

ViacomCBS

Paulson also sold out of his ViacomCBS (NASDAQ:VIAC) position for a second time in the first quarter. After re-establishing the holding in 2019, the guru shrunk the holding to 1.56 million shares before selling those shares for an average price of $61.05 during the quarter. GuruFocus estimates Paulson has lost 13.56% on the holding and the sale had a -1.52% impact on the equity portfolio.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

ViacomCBS is the recombination of CBS and Viacom that has created a media conglomerate operating around the world. CBS's television assets include the CBS television network, 28 local TV stations and 50% of CW, a joint venture between CBS and Time Warner. The company also owns Showtime and Simon & Schuster. Viacom owns several leading cable network properties, including Nickelodeon, MTV, BET, Comedy Central, VH1, CMT and Paramount. Viacom has also built several online properties on the strength of these brands. Viacom's Paramount Pictures produces original motion pictures and owns a library of 2,500 films, including the "Mission: Impossible" and "Transformers" series.

As of May 25, the stock was trading at $40.82 per share with a market cap of $26.50 billion. The GF Value Line shows the shares trading at a significantly overvalued rating.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 10 out of 10. There are currently three severe warning signs issued for assets growing faster than revenue, a declining operating margin and an Altman Z-Score of 1.66 placing the company in the distress column. The company's cash flows and net income hit a peak in 2018, but have struggled to regain the same success seen at that time.

John Paulson Axes Discovery, Buys Perpetua Resources
John Paulson Axes Discovery, Buys Perpetua Resources

Disclosure: Author owns no stocks mentioned.

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This article first appeared on GuruFocus.

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