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) 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), 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), 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)

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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9. Covidien ( COV)

Company Profile: Based in the U.K., Covidien sells health-care products, such as medical devices and supplies, for use in clinical and home settings.

Paulson's Investment: Paulson & Co. snatched 2 million shares of Covidien in the third quarter. The position had a market value of $88 million as of Sept. 30.

Share Price Performance: Since the end of the third quarter, Covidien shares have climbed more than 7%.


8. Temple-Inland ( TIN)

Company Profile: Temple-Inland manufactures containerboard and converts it into a complete line of corrugated packaging. International Paper ( IP) announced in September it will buy the company for nearly $4 billion.

Paulson's Investment: Playing on the merger-arbitrage opportunity, Paulson picked up 3 million shares of Temple-Inland last quarter, which was worth $94 million as of Sept. 30.

Share Price Performance: The takeover offer by International Paper has boosted Temple-Inland's share price by 50% this year. Since the deal was announced in early September, shares have ticked higher by only 2%.

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7. Transatlantic Holdings ( TRH)

Company Profile: Transatlantic Holdings offers reinsurance capacity for a full range of property and casualty products to insurers.

Paulson's Investment: Paulson owned 2 million shares of Transatlantic with a market value of $97 million as of Sept. 30.

Share Price Performance: Shares of Transatlantic are up only 5.7% this year overall, but the stock has done well since late September. Shares are up 15% since the end of the third quarter.


6. Talisman Energy ( TLM)

Company Profile: Talisman Energy is an oil and gas company with operation areas in North America, the North Sea and Southeast Asia.

Paulson's Investment: Paulson bought 8.7 million shares of Talisman in the third quarter. His hedge fund's stake was worth $107 million as of Sept. 30.

Share Price Performance: While shares of Talisman Energy are down more than 36% this year, Paulson may actually have a profit in this position depending on when his hedge fund purchased shares. Since Sept. 30, shares of the energy company are up 15%.

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5. InterDigital ( IDCC)

Company Profile: InterDigital produces, sells and licenses wireless digital radio-telephone systems for voice and data communications.

Paulson's Investment: Paulson picked up 3 million shares of InterDigital in the third quarter, which was worth about $140 million as of Sept. 30.

Share Price Performance: InterDigital shares have been on a wild ride this year. While the stock is up 10.5% overall in 2011, InterDigital is down significantly from its 52-week high of $82.50. This stock may be a loser for Paulson currently, as shares are down 7.5% since Sept. 30.


4. AMC Networks ( AMCX)

Company Profile: AMC Networks owns and operates several popular and award-winning brands in cable television, such as AMC, IFC, Sundance Channel and WE tv.

Paulson's Investment: Given Paulson's performance so far this year, it's no surprise that the hedge fund manager likes the company that produces the show The Walking Dead. Paulson & Co. owned 5 million shares of AMC Networks as of Sept. 30, a position that carried a market value of about $160 million.

Share Price Performance: Shares of AMC Networks are down almost 9% since the company was spun off from Cablevision ( CVC) in July. Since Sept. 30, the stock is up nearly 14%.

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3. News Corp. ( NWS)

Company Profile: News Corp. is a global media company with operations in film, television and newspapers. The company owns the Fox television network as well as newspapers like The Wall Street Journal and The New York Post. The company came under fire after a phone hacking scandal in the U.K. was uncovered earlier this year.

Paulson's Investment: If misery loves company, it's no wonder Paulson bought shares of Rupert Murdoch's company last quarter. Paulson's stake totaled 14.7 million shares worth $229 million as of Sept. 30.

Share Price Performance: The phone hacking scandal may be wounding Murdoch's pride but it hasn't left a mark on News Corp.'s share price. The stock is up 6% this year and more than 11% since the end of the third quarter.


2. Nalco Holding ( NLC)

Company Profile: Nalco Holding provides water, energy, air and process technologies and services that deliver savings for customers and improve the environment. Its programs and services are used in water treatment applications.

Paulson's Investment: Paulson, like Farallon Capital's Thomas Steyer, was a fan of Nalco in the third quarter. Paulson & Co. bought 9.2 million shares of the company, a stake worth $321 million as of Sept. 30.

Share Price Performance: Shares of Nalco have rallied more than 20% in 2011, but most of that rally came after the company agreed to a merger with Ecolab ( ECL).

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1. Motorola Mobility ( MMI)

Company Profile: Motorola Mobility is a wireless handset maker, mostly known for its line of Droid mobile phones. Google ( GOOG) announced in August it will acquire Motorola for $12.5 billion.

Paulson's Investment: Paulson's love for merger-arbitrage plays makes this pick perfectly logical. Paulson owned 9 million shares of Motorola Mobility as of Sept. 30, which was worth $340 million.

Share Price Performance: Motorola shares have surged this year, but that comes mostly due to the Google takeover bid. The stock is up 34% this year but has added only 3% since Sept. 30.

>>To see these stocks in action, visit the John Paulson's 10 Best New Investment Ideas portfolio on Stockpickr.

-- 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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