Monday, 28 May 2012

Billionaire John Paulson Likes Caesar's, AngloGold Ashanti, and CVR

Hedge fund legend John Paulson spoke at the Ira Sohn conference on Wednesday and presented three investment ideas: Caesar’s, AngloGold Ashanti, and CVR Energy.
On the first one, Paulson praised the company’s high option value and suggested the stock could go up to $138.  Because the company had been bought out by private equity, and has recently returned to markets, it is a highly leveraged structure where debt has been restructured in such a way that there are no payments until 2015, Paulson noted.
Caesar’s, as most hotel and gaming stocks, fell with the economy in the financial crisis, but is now at a turning point, Paulson said.  The recovery in its core business, aided by improved revenues in Las Vegas, will be boosted by expansion into Asia and other domestic locations.

Online gaming, which Paulson expects to become legal relatively soon in the U.S., should provide additional upside.  The company’s equity value represents only 7% of its capitalization, and if EBITDA recovers to 2007 levels, and one adds new business, the stock could soar.
Paulson’s second idea was AngloGold Ashanti.  The stock has been a very poor performer when compared to gold, but its earnings are exploding, as it manages to leverage the high price of gold, Paulson explained.
AngloAshanti is trading at its lowest valuation in ten years, and at a substantial discount to gold, despite growing reserves at a rate of 8% over the next couple of years.  He equated it to owning gold for a lot less and also being paid to hold it by receiving a dividend. If the company were trading along with its peers in terms of valuations, there would be about 75% upside for the stock, even in current market conditions, Paulson noted.
His third and last pick was CVR Energy, which he called “a gift from Carl Icahn.”  It’s a merger/arb transaction, which Paulson explained one always should invest in.  “Carl is generous to himself,” said Paulson, adding that in this case, the billionaire activist was also generous to shareholders.
Icahn said he would buy the whole company for $30 a share and, if he managed to sell for $35 a share, he would return most of the increment to shareholders, Paulson noted.  While they initially thought there had to be some catch, they noticed there wasn’t, and bought into the company.  They did get paid, and managed to also benefit from contingent cash payments.
CVR is a refinery play in the mid-West, meaning it benefits from cheaper WTI prices (as opposed to Coast refineries, facing Brent-like prices for crude).

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