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John Paulson's 10 Best New Investment Ideas

BOSTON ( TheStreet) -- Paulson & Co. founder John Paulson probably would like to forget the third quarter, given the huge losses his hedge fund amassed. Still, the billionaire investor is seeking to rebound from an atrocious performance with new investments in companies including Motorola Mobility (MMI - Get Report) and Nalco Holdings (NLC).

After earning a record $5 billion for a hedge fund manager last year with the help of gold and bank stocks, Paulson is now slashing some of those holdings. His flagship Advantage Plus Fund has plummeted 47% this year through September, according to several media reports that cite investors in the fund. Even Paulson's bet on gold has worked against him, with his gold fund down about 30% this year.

John Paulson (Paulson & Co.)

In July, Paulson announced during an investor call that he was reducing his net long exposure to 60% from 81% previously, according to a Reuters report, with the hedge fund manager saying he "cannot operate the fund at level. I'd like to bring the risk down further to about 50%." He admitted he was "too aggressive" with some stock bets, the report said.

Despite his miserable performance this year, Paulson said he received less than 8% in year-end redemption requests for all of his funds from wealthy clients, according to a report earlier this month by Bloomberg, which cited Paulson's letter to shareholders.

Paulson took part in some dramatic sales during the third quarter, unloading positions in JPMorgan Chase (JPM), Comcast (CMCSA) and State Street (STT), among others.

Perhaps most notably, Paulson slashed his holding in the SPDR Gold Trust ETF (GLD), dropping his position by 11.2 million shares to 20.3 million. The gold ETF still remains as Paulson's largest disclosed holding with a market value of $3.2 billion as of Sept. 30.

Paulson & Co. also cut its holdings in stocks like Citigroup (C - Get Report), Hewlett-Packard (HPQ), Wells Fargo (WFC) and Transocean (RIG), among others.

Hedge fund and investment managers who manage more than $100 million are required to disclose their equity holdings, options and convertible debt on a Form 13F filed to the Securities and Exchange Commission within 45 days of the end of a quarter. Funds aren't required to report short positions betting on declines. Paulson ended the third quarter with 87 reported holdings with a market value of $20.7 billion.

>>View John Paulson's Portfolio

Paulson wasn't selling everything in his portfolio. The embattled fund manager increased his stake in 16 companies, including several gold-related companies like Randgold Resources (GOLD), Iamgold (IAG) and Barrick Gold (ABX). Paulson also purchased warrants for Bank of America (BAC - Get Report), despite having been dealt big losses owning the bank's common shares earlier this year.

Most interesting to investors are Paulson's newly initiated positions, which could be the foundation for a 2012 rebuilding after the fund's rout. After all, the investor came to prominence with contrarian bets in 2008, when he scored sevenfold gains betting on the decline in subprime-mortgage securities. Overall, Paulson added 13 new investments to the fund last quarter.

Three of the newest additions to Paulson's portfolio with the smallest market value as of Sept. 30 are Medco Health Solutions (MHS), Paetec Holding (PAET) and Goodrich (GR). The following pages detail Paulson & Co.'s 10 largest new positions in the third quarter, ranked by market value as of Sept. 30.

10. CVS Caremark (CVS - Get Report)

Company Profile: CVS Caremark is a provider of prescriptions and related health-care services through its retail locations across the U.S.

Paulson's Investment: Paulson & Co. grabbed 2.5 million shares of CVS in the third quarter. The position had a market value of $84 million as of Sept. 30.

Share Price Performance: CVS shares have climbed 11% this year and have been a big winner since bottoming out in August following the debt ceiling debate and subsequent downgrade of the U.S. debt by Standard & Poor's. Since Paulson's stated ownership date of Sept. 30, CVS shares have rallied 15%.

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GLD $123.10 0.84%
BAC $14.12 0.46%
C $44.37 0.32%
CVS $104.79 -0.34%
MMI $26.55 8.00%


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