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Paulson's 10 Best New Investment Ideas

BOSTON ( TheStreet) -- Paulson & Co. founder John Paulson earned a record amount for any hedge fund manager last year with the help of gold and bank stocks. Now he's counting on laptop and printer maker Hewlett-Packard (HPQ - Get Report) and lumber and pulp company Weyerhaeuser (WY - Get Report) for a repeat performance in 2011.

John Paulson gained notoriety for his big bets on gold and financial shares such as Goldman Sachs (GS) and Citigroup (C - Get Report), which netted him a personal profit of $5 billion in 2010, the largest one-year gain in investing history.
John Paulson (Paulson & Co.)

Paulson maintained his bet on gold in the first quarter, even as billionaire investor George Soros has pared investments in the precious metal. Earlier this month, Paulson told investors at a New York meeting that gold could climb as high as $4,000 an ounce, from about $1,500 today. Soros, who last year said gold was the ultimate bubble, sold much of his investments in gold and silver, according to a report in The Wall Street Journal.

In the first quarter, Paulson's position in the SPDR Gold Trust (GLD) was unchanged at 31.5 million shares, valued at more than $4.4 billion. However, the hedge fund manager dimmed his view of bank stocks, dumping 80,000 shares of Citigroup, 2 million shares of CIT Group (CIT) and 226,000 shares of Bank of America (BAC - Get Report).

>>View John Paulson's Portfolio

Paulson & Co. also eliminated entire positions in 14 companies, including Pfizer (PFE), Walter Energy (WLT) and Symantec (SYMC). On the other hand, Paulson increased his established stakes in companies like Transocean (RIG) and gold companies such as Barrick Gold (ABX) and Gold Fields (GFI).

Despite the bet on gold, Paulson's flagship Advantage Fund Plus is down 1.7% this year through the end of April, according to several media reports. Paulson & Co.'s most recent filing with regulators shows that the firm's equity portfolio rose to $34.3 billion from $29.3 billion at the end of the fourth quarter. Hedge funds that manage more than $100 million are required to disclose their equity holdings, options and convertible debt on a Form 13F filed to the SEC within 45 days of the end of a quarter. Funds aren't required to report short positions betting on declines.

Now, Paulson is taking advantage of cheap debt. Filings with the U.S. Bankruptcy Court of Manhattan at the end of April showed that Paulson was part of a group that has begun acquiring billions in debt of Lehman Brothers, which collapsed in September 2008 during the credit crisis. Paulson purchased the debt for as little as 10 cents on the dollar. The Wall Street Journal estimates that Paulson could reap profits between $350 million and $726 million on the Lehman trades, depending on the settlement amount approved in bankruptcy court.

Most interesting to investors are Paulson's newly initiated positions, which could be the foundation for another year's worth of record profits. Overall, Paulson added 18 new positions to the fund's portfolio last quarter, including small stakes in Lorillard (LO) and Atheros Communications (ATHR).

Other new holdings, though, have market values that exceed $65 million, making them among Paulson's biggest and newest bets in 2011. The following pages detail Paulson & Co.'s 10 largest new positions in the first quarter, ranked by market value as of March 31.

10. Rock-Tenn Co. (RKT)

Company Profile: Rock-Tenn is a maker of packaging products, recycled paperboard, containerboard, bleached paperboard and merchandising displays.

Paulson's Investment: The hedge fund bought 1 million shares of Rock-Tenn during the first quarter, a position valued at $69 million as of March 31.

Rock-Tenn shares have soared this year, surging more than 32%. In January, Rock-Tenn said it would acquire Smurfit-Stone Container (SSCC), another holding of Paulson's fund, for $35 a share.

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