Paulson's 10 Best New Investment Ideas

BOSTON ( TheStreet) -- Paulson & Co. founder John Paulson has endured a tumultuous year as his hedge fund has fallen more than 30%. The billionaire investor is seeking to rebound with new investments in companies including News Corp. ( NWSA) and Mosaic ( MOS).

After earning a record amount -- $5 billion -- for a hedge-fund manager last year with the help of gold and bank stocks, Paulson is now slashing holdings in many of those investments as his fund's performance has badly lagged behind the broader market. Paulson's flagship Advantage Plus Fund has plummeted 31% this year, according to several media reports that cite investors in the fund.

John Paulson (Paulson & Co.)

Paulson in July 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 "we 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.

Paulson's second-quarter filing reveals that he slashed positions in financial stocks like Bank of America ( BAC), Citigroup ( C), CIT Group ( CIT) and SunTrust Banks ( STI), among others.

Meanwhile, he reduced his stakes in gold companies AngloGold ( AU), Gold Fields ( GFI) and Kinross Gold ( KGC). Paulson maintained his 31.5 million-share position in the SPDR Gold Trust ( GLD) ETF, which had a market value of $4.6 billion as of June 30.

>>View John Paulson's Portfolio

Paulson & Co. also eliminated entire positions in 20 companies, including Boston Scientific ( BSX), J.C. Penney ( JPC) and Lorillard ( LO).

On the other hand, Paulson increased his established stakes in companies including Wells Fargo ( WFC), Ralcorp Holdings ( RAH) and Capital One Financial ( COF).

Most interesting to investors are Paulson's newly initiated positions, which could be the foundation for a rebuilding after the fund's rout. The investor came to prominence in 2008, when he scored sevenfold gains betting on the decline in subprime-mortgage securities.

Overall, Paulson added 12 new investments to the fund last quarter. The following pages detail Paulson & Co.'s 10 largest new positions in the second quarter, ranked by market value as of June 30.


10. RLJ Lodging Trust ( RLJ)

Company Profile: RLJ Lodging invests primarily in premium-branded and compact full-service hotels.

Paulson's Investment: The hedge fund bought 2.7 million shares of RLJ Lodging during the second quarter, a position valued at $47 million as of June 30.

Share Price Performance: Since the stock's debut in May, RJL Lodging shares have plunged about 21%, with most of the decline coming in August as markets crumbled following the Standard & Poor's downgrade of U.S. debt. Since June 30, shares are down about 20%, meaning the position is probably underwater if Paulson is still a holder.

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9. NYSE Euronext ( NYX)

Company Profile: NYSE Euronext, owner of the New York Stock Exchange, is global provider of securities listing, trading, market-data products. The company will merge with Germany's Deutsche Boerse following a regulatory review of the transaction.

Paulson's Investment: Paulson & Co. initiated a new position in NYSE Euronext during the second quarter, buying 3 million shares that had a value of almost $103 million as of June 30.

Share Price Performance: Shares of NYSE Euronext are also a likely loser for Paulson if he remains a holder, as shares are down a whopping 15.5% since June 30.


8. Grifols SA ( GRFS)

Company Profile: Grifols makes plasma derivatives, IV therapy, enteral nutrition, diagnostic systems and medical materials.

Paulson's Investment: The hedge fund bought 14 million shares of Grifols during the second quarter, ending with a market value of $107 million as of June 30.

Share Price Performance: Grifols is another ugly stock chart for Paulson as well as fellow hedge-fund investor Steven Cohen. Shares are down nearly 6% since the stock's debut in early June. After notching a high of $8.50 in late July, the stock has plunged as low as $6.33 earlier this month.

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7. Walter Energy ( WLT)

Company Profile: Walter Energy is a producer and exporter of metallurgical coal for the global steel industry. It also produces steam coal, coal bed methane gas, metallurgical coke and other related products.

Paulson's Investment: Paulson grabbed 1 million shares of Walter Energy during the second quarter, a position that was valued at $115 million at the time.

Share Price Performance: If Paulson sold out of Walter Energy in July he might have a nice gain, but if he continues to hold shares, he's likely facing losses with this position already as well. Walter Energy's stock is down more than 25% since June 30.


6. Tenet Healthcare ( THC)

Company Profile: Tenet Healthcare is a health-care-services company whose subsidiaries and affiliates mainly operates general hospitals and related health-care facilities.

Paulson's Investment: Paulson & Co. purchased 20 million shares of the healthcare company, worth $124 million as of June 30.

Share Price Performance: Tenet Healthcare has been a dog this year, tumbling 24% in 2011. If Paulson continues to hold a position in the stock, he is down 19% in the position since June 30.

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5. Mosaic ( MOS)

Company Profile: Mosaic produces concentrated phosphate and potash crop nutrients for the global agriculture industry.

Paulson's Investment: The hedge fund bought more than 2 million shares of Mosaic in the quarter, which had a value of $152 million as of June 30.

Share Price Performance: Mosaic shareholders have had a rough 2011, with the stock down 13% this year. Since June 30, shares are down a more palatable 2%.


4. Southern Union ( SUG)

Company Profile: Southern Union processes, transports and stores natural gas in the U.S.

Paulson's Investment: Paulson bought 4.5 million shares of Southern Union during the second quarter, which was worth $181 million as of June 30.

Share Price Performance: Southern Union has been a breakout performer this year, rallying 73% in 2011. Since June 30, shares are up nearly 4%.

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3. News Corp. ( NWSA)

Company Profile: News Corp. is a global media company with operations in filmed entertainment, television, cable network programming, magazines and newspapers. Fox and The Wall Street Journal are among the company's most recognizable brands.

Paulson's Investment: Paulson & Co. purchased 10.4 million shares of News Corp. during the second quarter, a position worth about $184 million as of June 30.

Share Price Performance: Despite the phone hacking scandal that closed down News of the World and threatens Rupert Murdoch's position as CEO, News Corp. has been a winner this year, rising more than 16%. Since June 30, however, shares are down 4.5%.


2. Savvis ( SVVS)

Company Profile: Savvis provides cloud-infrastructure and hosted-IT services.

Paulson's Investment: Paulson & Co. snatched up 5.7 million shares of Savvis during the second quarter, which carried a market value of $225 million at the time.

Share Price Performance: Savvis was likely a winner for Paulson before the company was acquired in mid-July by CenturyLink ( CTL). Before the acquisition was completed, shares of Savvis were up 55% in 2011.

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1. Life Technologies ( LIFE)

Company Profile: Life Technologies is a global biotechnology-tools company, which delivers a range of products and services that enable researchers to accelerate scientific exploration.

Paulson's Investment: The hedge fund grabbed 7.5 million shares of Life Technologies during the second quarter, a position worth $391 million as of June 30.

Share Price Performance: Life Technologies looks to be another losing position for Paulson & Co. if the hedge fund still maintains ownership of the stock. Shares of Life Technologies are down 30% this year and 25% since June 30.

-- Written by Robert Holmes in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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