No hedge fund was more successful in a volatile 2007 than Paulson & Co., which was up an amazing 435% on the year even as the average hedge fund returned a paltry 10.5%.
Formed by ex-
trader John Paulson in the early '90s, Paulson bet that the subprime market would collapse in 2007 and shorted a large part of the ABX subprime mortgage index.
Reports suggested that Paulson netted anywhere from $12 billion to as much as $20 billion in profits in 2007.
Paulson and his investors profited enormously as the subprime market collapsed and as other hedge funds -- such as
Sowood-Capital-Management -- lost over 50%.
Here at Stockpickr, we actively track
Paulson Capital's portfolio to see what ideas it might be considering next.
One of Paulson's main positions is
. Hologic is a maker of medical appliances and equipment that caters to the baby boomers. Part of Paulson's investment thesis is a slowing economy and possible recession, but if that happens, investors typically flock to these defensive names, because their earnings are generally immune from economic problems.
Recent acquisitions and a large secondary offering still have to be worked through. But with $100 million in cash, $10 million in debt, a PEG ratio of 1.2 and great growth prospects, Hologic is one stock to own no matter how the economy fares.
Paulson also owns
. Mirant produces and sells electricity and also offers platforms to trade and hedge against electricity. Paulson is making a bet on clean energy, specifically electricity.
Fundamentally, Mirant is very interesting. Back in November, Mirant decided to not put itself up for sale but rather return $4.6 billion to shareholders. Looking back, this was a great move by the company, as the current credit markets would have limited the potential sale-price premium.
Instead, the company announced that it would accelerate its buyback to $1 billion and another $1 billion for open market purchases. As trading volumes increase across all exchanges, and with a decrease in shares, Mirant's earning per share is locked in for '08. It also has a 20% short position.
Paulson also owns
, which just beat earnings per share by 3 cents. Alcoa has a PEG ratio of 1.05.
, an offshore driller with a 15% short position, also appears in Paulson's portfolio.
To check out the entire portfolio, which includes Alcoa,
James Altucher is president of
LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for the
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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