For those feeling lost in all of the stock market fog, investing gurus can offer a sense of clarity. No one more so than John Paulson, the billionaire investor who made a fortune by betting against the 2007 housing bubble.
Paulson built his name and reputation the old hard way – in 1994 he parlayed his $2 million in seed money into one of the most successful hedge funds on Wall Street. In its last 13F filing, for Q1 2020, his firm, Paulson & Co, reported nearly $10.7 billion in assets under management. And in recent days, his long-term love affair with gold stocks has started turning away from lackluster returns.
Gold is not the only thing drawing in Paulson’s attention – and his money. He has also recently bought heavily into heavy industrial stocks and cutting-edge high techs. We’ve used TipRanks’ database to pull up the details on three of Paulson’s recent major purchases to find out what makes those stocks special.
Kirkland Lake Gold (KL)
The first stock we’ll look at is, indeed, a gold stock. In fact, with a market cap over $10 billion, Kirkland plays in the gold mine big leagues. The company has six operating mines, in Canada and Australia, which last year produced over 974,000 ounces of gold. Even after the coronavirus hit, the company estimates 2020 production at 1.5 million ounces, telling investors that the increase is based on higher quality ores coming out of the mines. Kirkland’s financial position is sound, and the company saw free cash flow increase by 81% last year.
In the first quarter of this year, Paulson took out a new position in KL stock, buying up more than 1.5 million shares. This is a clear sign that Paulson remains bullish on gold. In the case of Kirkland, this makes sense, as the stock, three months after the February market collapse, is back at pre-bear prices.
Writing from CIBC, 5-star analyst Cosmos Chiu also sees clear sailing ahead for KL. He writes, “We continue to like Kirkland Lake Gold as one of our top picks, with three cornerstone assets of Fosterville, Macassa, and Detour Lake that continue to drive high profitability. In Q1, Kirkland Lake Gold generated $191.4 million in adjusted FCF, with Detour Lake contributing $78 million from its first two months…”
Chiu’s opinion backs his Buy rating, as does his C$69 (US$50.20) price target. At current prices, this target suggests a robust 33% upside for the coming year. (To watch Chiu’s track record, click here)
Overall, Wall Street agrees that KL is a buying proposition. The stock’s 10 recent reviews break down to 7 Buys and 3 Holds, making the analyst consensus rating a Moderate Buy. KL is currently selling for $37.64, and the $47.13 average price target implies an upside of 25% this year. (See Kirkland stock analysis on TipRanks)
Tech Data Corporation (TECD)
The next stock on our list is not a new position for Paulson, but it is one that he increased substantially. Tech Data fills a vital niche in the IT industry. The company sells a broad range of products, from logistic capabilities and add-on value to some of the biggest names in tech. TECD’s products, in short, allow cloud, IoT, and other tech applications to work seamlessly.
And let’s face it, that’s a niche that will benefit from the coronavirus crisis. With so many people shut in their homes for nearly three months, and millions of workers switching to telecommuting, networking and other high-tech connection devices were in high demand. While the market slumped in February/March, TECD saw a huge jump in earnings for Q1. While Q1 is historically the company’s best of the year, the sequential gains going into Q1 2020, of 60%, were substantially higher than the 50% sequential gain recorded between Q4 2018 and Q1 2019. The results for Q1 2020 were solid; the company reported $4.88 in EPS, beating the forecast by 2%, on top of the strong sequential gain.
Tech Data’s solid position in a niche bound to see gains was clear to Paulson. He increased his holding in the stock by 50%, buying over 66,000 shares to make his total holding 200,000. At the current share price, this worth $26.7 million.
Reward potential is the name of the game for 5-star Northcoast analyst Keith Housum. In his note on this stock, in which he upgraded his firm’s stance from Neutral to Buy, Housum wrote, “The recent market dislocation has created a risk/reward profile that is leaning convincingly toward a great short term opportunity for investors to lock in a 18% gain to be recognized over next several months.”
Housum set a $145 price target on TECD shares, suggesting an upside that now stands at 6.5% for the next 12 months. His is the only recent review of the stock in the TipRanks database – but the Smart Score on this stock, which analyzes 8 separate factors that influence future share price, is a perfect 10. (See Tech Data stock analysis at TipRanks)
Navistar (NAV)
The third stock on our list is Navistar, a major player in heavy industry. The company’s main subsidiary, International, is a name well-known to truckers; it produces heavy trucks, busses, and diesel engines for both the commercial markets and the defense industry. That cereal you ate for breakfast this morning? There’s good chance it was delivered to the grocery store in an International truck.
The economic shutdowns in response to coronavirus hit NAV hard, and the company’s stock – which had been riding high after a strong Q4 earnings beat – has still not recovered from the February price crash.
There are at least two bright spots. First, the Q1 losses were not quite as deep as expected; NAV reported a net loss of 33 cents per share, against the forecast of 38 cents. And second, the company is sitting on $1 billion in available cash, and requires about half that sum to maintain operations. It’s an enviable position for any company to hold, and, along with is one of the company’s clear strengths.
That NAV has clear strengths is shown by Paulson’s move toward the stock. He bought up over 223,000 shares in Q1, opening a new position that is currently worth almost $5.8 million. Paulson is known for accepting risk – but he’s also known for betting big before the markets change direction.
It’s worth paying attention, because on this one Paulson is heading at right angles to the Wall Street sentiment. BMP Capital’s Joel Tiss rates NAV a Hold, writing, “The company has done a tremendous amount of work to lower its cost structure, redesign its products, and gain back some lost market share all while trimming its less profitable product lines… and seeing that the need for new vehicles from large leasing and rental companies is projected to drop by as much as 50% y/y in 2020, we expect the company’s market share could come under further pressure this year.”
Even with his Hold, however, Tiss does not give up on NAV. His $35 price target implies a solid upside of 34% for the coming year. (To watch Tiss’ track record, click here)
NAV has a unanimous analyst consensus rating – a solid Hold, based on 6 reviews. The stock has been volatile in the past year, and the current share price is $26.68. At $31.33, the average price target indicates room for a potentially strong upside of 17%. (See Navistar stock analysis on TipRanks)
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