November 11th, 2011
by Guest Author Bill Barnhart, Y-Charts.com
By all accounts, celebrity hedge fund investor John Paulson (pictured) is having a bad year. The consummate Wall Street insider, linked conspiratorially to Goldman Sachs’ (GS) role in the 2008 financial collapse, he’s one of the stars of the Occupy Wall Street rogues gallery.
And perhaps Paulson’s clients may be among the demonstrators. The Paulson & Co. investment firm bet on big bank stocks, such as Bank of America (BAC), Wells Fargo (WFC), JP Morgan Chase (JPM) and Citigroup (C). All have scored far worse than the benchmark S&P 500 index in the last 12 months. Through September Paulson’s principal fund was down 44% this year.
Still, his less well known investments this summer bear watching as he tries to rebound from his annus horribilis. For equity investors, Paulson’s latest stock picks, even though they comprise a small percentage of his portfolios, at least tell us what a well wired Wall Streeter sees as opportunities.
Using data from Paulson & Co.’s 13-F filings and from research service Whalewisdom.com (both available via YCharts), I looked at stocks listed as new acquisitions by the firm in the second-quarter – the latest data available.
Unlike the never-never land occupied by giant banks, these four companies are grounded in basic economic realities – healthcare (Life Tech and Tenet Healthcare), food (Mosaic) and energy (Southern Union).
By YCharts’s value screens, potash and phosphate fertilizer producer Mosaic, with a market capitalization of $16 billion, looks like the best bet. Shares slipped in recent weeks, after a 75% gain in first fiscal quarter earnings per share in late September failed to excite some analysts. Revenue growth is running at more than 40%, a bit behind competitors CF Industries (CF), 53% revenue growth, and Potash Corp. of Saskatchewan (POT) 47% revenue growth.
But Mosiac represents a strong value on the basis of share price to sales and earnings yield.
Natural gas distributor and utility Southern Union (market capitalization, $5.3 billion) has ridden the wave of investor enthusiasm for natural gas as a solution to America’s energy needs.
Life Technologies, with a market cap of $7.3 billion, makes materials and equipment for biological research. Shares sank last summer after what the company called disappointing second-quarter results, especially in China. Earnings per share rebounded in the third quarter. But a better value in this industry may be Agilent Technologies (A), with $13.1 billion in market cap and a more enviable recent record in return on equity.
Finally, hospital operator Tenet Healthcare, with a market cap of $2.3 billion, rates an “Avoid” at YCharts. Revenue growth trails peer Health Management Associates (HMA) and Universal Health Services (UHS). Profitability, as measured by return on equity, has been erratic.
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