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BOSTON (TheStreet) -- Billionaire hedge-fund managers David Tepper and John Paulson shared a small-cap insurance bet in the fourth quarter.

Paulson earned almost $10 billion for himself over the past three years, in large part, by selling short subprime mortgage securities. Tepper's four portfolios, run from Appaloosa Management's offices in Chatham, N.J., doubled last year, helped by timely wagers on financial-services firms.

Tepper boosted his


(CNO) - Get CNO Financial Group, Inc. Report

position by 39% to 2.2 million shares in the latest quarter, and Paulson multiplied his wager eight-fold to 24 million shares through a private placement, according to Securities and Exchange Commission filings. Paulson's new shares cost him $78 million, accounting for 8.9% of shares outstanding. As it's difficult to unload 24 million shares in a pinch, it's safe to assume that Conseco is a long-term holding of Paulson's New York-based Paulson & Co.

The once-beleaguered insurer, based in Carmel, Ind., mounted a turnaround in 2009. Conseco swung to a third-quarter profit of $15 million, or 8 cents a share, from a loss of $183 million, or 14 cents, a year earlier. Revenue increased 9.5% to $1.1 billion, and the operating margin stretched from 3% to 8.6%. This performance marked the third-consecutive quarterly profit for Conseco, which suffered an accumulated loss of $2.21 a share in 2008.

Conseco sells supplemental health insurance, life insurance and annuities. However, unlike peers, Conseco is focused on a demographic niche: elderly Americans. This segment is growing as a percentage of the overall population, providing superior growth opportunities. The company's three subsidiaries, Bankers Life and Casualty, Colonial Penn Life and Conseco, receive grades of D-plus from TheStreet's insurance model for financial safety.

Despite the poor scores, Conseco remains an attractive investment. Its shares are considerably cheaper than those of insurance peers. The stock trades at a price-to-projected-earnings ratio of 8.3, a price-to-book ratio of 0.3 and a price-to-sales ratio of 0.2. Those figures represent substantial discounts to industry averages and large-cap peers

Manulife Financial

(MFC) - Get Manulife Financial Corporation Report


Chubb Corp.

(CB) - Get Chubb Limited Report


Conseco's weakness is a profit spread that's thinner than those of larger insurers. In addition, Conseco's stock has an excessive beta value of 2.7, tending to magnify market movements. However, it surged 274% over the past year, outpacing the

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, which returned 70%. Industry leviathan


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gained 37%.

Sell-side analysts are less optimistic than Paulson and Tepper are about Conseco. Of six firms surveyed by


, just one,

FBR Capital Markets

( FBCM), recommends purchasing the shares, while five advise holding them. Institutions betting alongside hedge funds include

State Street

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(BLK) - Get BlackRock, Inc. Report


-- Reported by Jake Lynch in Boston.