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John Paulson Buys Lear, Sells TD Ameritrade

GuruFocus.com
·9 min read

- By Sydnee Gatewood

John Paulson (Trades, Portfolio), head of investment firm Paulson & Co., disclosed his third-quarter portfolio earlier this month.


With the long-term goal of capital preservation, above-average returns and low correlation to the market, the guru's New York-based firm specializes in event-driven arbitrage strategies, including merger arbitrage, bankruptcy reorganizations and distressed credit.

Sticking to his strategy, the investor revealed he established only one new position during the quarter, sold out of one holding and added to or trimmed a number of other existing investments. Notable transactions included the addition of Lear Corp. (NYSE:LEA), the divestment of TD Ameritrade Holding Corp. (NASDAQ:AMTD), a boost to the Endo International PLC (NASDAQ:ENDP) stake and reductions of the Horizon Therapeutics PLC (NASDAQ:HZNP) and Qiagen NV (NYSE:QGEN) holdings.

Lear

After exiting a position in Lear in the second quarter, Paulson entered a new 10,103-share holding, giving it 0.03% space in the equity portfolio. During the quarter, the stock traded for an average price of $113.99 per share.

The Southfield, Michigan-based company, which manufactures automotive seating and electrical systems, has an $8.48 billion market cap; its shares were trading around $141.98 on Monday with a price-earnings ratio of 105.02, a price-book ratio of 2.05 and a price-sales ratio of 0.52.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overvalued. The GuruFocus valuation rank of 3 out of 10 also supports this assessment since the share price, price-earnings and price-sales ratios are all near multiyear highs.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

GuruFocus rated Lear's financial strength 5 out of 10. As a result of issuing approximately $336.7 million in new long-term debt over the past three years, the company has low interest coverage. In addition, the Altman Z-Score of 2.58 indicates the company is under some pressure since it has recorded losses in operating income in recent years. It may also be destroying value as it grows since the weighted average cost of capital surpasses the return on invested capital.

The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin, returns that outperform over half of its competitors and a moderate Piotroski F-Score of 5, which indicates business conditions are stable. Lear's predictability rank of four out of five stars is on watch as a result of revenue per share declining over the past 12 months. According to GuruFocus, companies with this rank return an average of 9.8% annually over a 10-year period.

Of the gurus invested in Lear, Richard Pzena (Trades, Portfolio) has the largest stake with 8.14% of outstanding shares. Steven Cohen (Trades, Portfolio), Hotchkis & Wiley, Pioneer Investments (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Howard Marks (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also own the stock.

TD Ameritrade

Having opened the TD Ameritrade holding in the second quarter, Paulson turned around and sold all 975,000 shares. The trade had an impact of -1.13% on the equity portfolio. Shares traded for an average price of $37.63 each during the quarter.

GuruFocus estimates the guru gained 0.21% on the investment.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

Headquartered in Omaha, Nebraska, the financial services company, which offers online brokerage services, has a market cap of $21.62 billion; its shares were trading around $39.97 on Monday with a price-earnings ratio of 11.2, a price-book ratio of 2.26 and a price-sales ratio of 3.76.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 10 out of 10 also supports this assessment.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

Despite having comfortable interest coverage and a steady cash-to-debt ratio of 2.31, TD Ameritrade's financial strength was rated 3 out of 10 by GuruFocus.

The company's profitability scored a 5 out of 10 rating on the back of strong margins and returns that outperform a majority of industry peers. TD Ameritrade also has a moderate Piotroski F-Score of 5, consistent earnings and revenue growth and a 3.5-star predictability rank. GuruFocus says companies with this rank return, on average, 9.3% annually.

With a 0.41% stake, Jim Simons (Trades, Portfolio)' Renaissance Technologies is the company's largest guru shareholder. Other top guru investors include Grantham, Diamond Hill Capital (Trades, Portfolio), George Soros (Trades, Portfolio), Pioneer, Mario Gabelli (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio) and Chuck Royce (Trades, Portfolio).

Endo International

The guru boosted the Endo International stake by 50.59%, buying 4.87 million shares. The transaction impacted the equity portfolio by 0.50%. During the quarter, the stock traded for an average per-share price of $3.21.

He now holds 14.5 million shares total, representing 1.49% of the equity portfolio. GuruFocus data shows Paulson has lost an estimated 77.80% on the investment since establishing it in the third quarter of 2015.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

The American pharmaceutical company that is domiciled in Ireland has a $1.24 billion market cap; its shares were trading around $5.42 on Monday with a price-sales ratio of 0.43.

Based on the median price-sales chart, the stock appears to be undervalued.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

Weighed down by weak interest coverage and a low cash-to-debt ratio of 0.2, GuruFocus rated Endo's financial strength 2 out of 10. The low Altman Z-Score of -0.75 also warns the company could be in danger of going bankrupt if it does not improve its liquidity. The WACC also eclipses the ROIC, indicating value is being destroyed.

The company's profitability fared better, scoring a 5 out of 10 rating on the back of an expanding operating margin. Its returns, however, are negative and underperform over half of its competitors, while its revenue per share has declined over the past five years. Endo also has a moderate Piotroski F-Score of 6 and a one-star predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.

Simons' firm is the company's largest guru shareholder with a 7.93% stake. Larry Robbins (Trades, Portfolio), Grantham, Cohen and Ainslie also have positions in the stock.

Horizon Therapeutics

Impacting the equity portfolio by -0.36%, Paulson trimmed the Horizon Therapeutics stake by 2.9%, selling 200,000 shares. The stock traded for an average price of $68.64 per share during the quarter.

He now holds 6.69 million shares total, which account for 16.2% of the equity portfolio and remains his largest holding. According to GuruFocus, Paulson has gained 300.45% on the investment since the second quarter of 2017.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

The Ireland-based biopharmaceutical company, which focuses on developing medicines to treat rare and rheumatic diseases, has a market cap of $15.61 billion; its shares were trading around $70.46 on Monday with a price-earnings ratio of 19.32, a price-book ratio of 4.12 and a price-sales ratio of 8.38.

The Peter Lynch chart suggests the stock is overvalued.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

Horizon Therapeutics' financial strength was rated 7 out of 10 by GuruFocus. Despite having weak interest coverage and assets that are building up at a faster rate than revenue is growing, the robust Altman Z-Score of 5.49 indicates the company is in good standing. The ROIC also surpasses the WACC, indicating good value creation.

The company's profitability did not fare as well, scoring a 3 out of 10 rating despite having strong margins and returns that outperform a majority of industry peers. Horizon Therapeutics also has a high Piotroski F-Score of 7, indicating business conditions are healthy, and a one-star predictability rank.

With a 3.98% stake, Simons' firm is Horizon's largest guru shareholder. Other top guru investors are Andreas Halvorsen (Trades, Portfolio), Cohen, Ken Heebner (Trades, Portfolio), Pioneer, Louis Moore Bacon (Trades, Portfolio) and Jones.

Qiagen

The guru curbed his Qiagen holding by 28.74%, selling 161,300 shares. The transaction had an impact of -0.22% on the equity portfolio. During the quarter, shares traded for an average price of $48.79 each.

Paulson now holds 400,000 shares total, which make up 0.65% of the equity portfolio. GuruFocus says he has gained an estimated 13.94% on the investment since establishing it in the second quarter.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

The German company, which provides sample and assay technologies for molecular diagnostics, applied testing and academic as well as pharmaceutical research, has a $10.70 billion market cap; its shares were trading around $46.73 on Monday with a price-earnings ratio of 57.75, a price-book ratio of 3.94 and a price-sales ratio of 6.37.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 also aligns with this analysis.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

GuruFocus rated Qiagen's financial strength 5 out of 10 on the back of adequate interest coverage and a high Altman Z-Score of 3.01. The ROIC is also above the WACC, indicating good value creation.

The company's profitability scored a 7 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 7. Qiagen also has a one-star predictability rank.

Pioneer has the largest stake in Qiagen with 1.34% of outstanding shares. Other top guru investors are Simons' firm, Ainslie, Gabelli and Greenblatt.

Additional trades and portfolio composition

During the quarter, Paulson also added to his holdings of International Tower Hill Mines Ltd. (THM), Taubman Centers Inc. (NYSE:TCO) and SSR Mining Inc. (NASDAQ:SSRM), while trimming his positions in Takeda Pharmaceutical Co. Ltd. (NYSE:TAK) TIM SA (NYSE:TIMB), Pacira BioSciences Inc. (PCRX) and Tiffany & Co. (NYSE:TIF).

The guru's $3.21 billion equity portfolio, which is composed of 31 stocks, is most heavily invested in the health care sector with a weight of 44.80%, followed by the basic materials space with 24.24% representation.

John Paulson Buys Lear, Sells TD Ameritrade
John Paulson Buys Lear, Sells TD Ameritrade

Disclosure: No positions.

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This article first appeared on GuruFocus.