Billionaire John Paulson Doubles Down on Valeant Pharmaceuticals Intl Inc.

Billionaire John Paulson owns $400 million of Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX). Should you buy, too?

| More on:
The Motley Fool

Billionaire hedge fund manager John Paulson has more than tripled the size of his stake in Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX), which could suggest the biotech giant has a lot more upside ahead of it.

Valeant has become a favourite among hedge funds. Since 2010 shares have climbed more than 15-fold, making early investors rich in the processHowever, Paulson’s position indicates the company still has a long-growth runway.

According to SEC filings published last week, the money manager increased his stake in Valeant nearly fourfold during the first quarter. Today his hedge fund Paulson & Co. owns a US$400 million position in the company as of March 31, up from under US$100 million at the start of the year.

Is Valeant Pharmaceuticals the next Berkshire Hathaway?

While Paulson’s move is a big vote of confidence in Valeant, he’s just one of many big money managers backing the company.

At the annual Sohn Investment Conference earlier this month, billionaire investor Bill Ackman called Valeant “a very early stage Berkshire Hathaway.” In his view the company is much more than a traditional pharmaceutical firm. Instead, Ackman describes Valeant as a platform to carry out investment activities in much the same way Berkshire is a platform for Warren Buffett’s business dealings.

To some extent, Ackman’s view is correct. Management’s strategy has been to buy up small and mid-size drug makers, then push their finished products through Valeant’s deep distribution network. As Fortune noted, the company has made more than 100 acquisitions since 2008.

Most of Valeant’s purchases have been pharmaceutical-based. However, the company did agree to acquire Bausch & Lomb last year in order to break into the ophthalmic and eye vision business. This has added a substantial degree of diversity to Valeant’s product portfolio.

Ackman estimates that Valeant should be able to complete between US$7 billion and US$20 billion worth of acquisitions on an annual basis. Based on that assumption, he believes the stock should be worth more than US$330 a share—50% higher from where it trades today.

If you don’t buy Valeant now, you’ll kick yourself later

However, John Paulson and Bill Ackman aren’t the only ones who see an opportunity.

According to SEC filings, famed value investor Jeffrey Ubben now owns a US$2.7 billion (yes, that’s billion with a b) stake in Valeant. A number of other hedge fund managers—including D.E. Shaw, Jim Simons, and Israel Englander—have been building positions in the company as well.

What could have these smart money managers so excited? I’d say it could only mean one thing—they see an epic rally ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned. Tom Gardner owns shares of Valeant Pharmaceuticals. The Motley Fool owns shares of Berkshire Hathaway and Valeant Pharmaceuticals.

More on Investing

protect, safe, trust
Dividend Stocks

The 2 TSX Stocks to Buy for Decades of Safe Passive Income

Stable dividend stocks are common, but companies that you can safely hold in your portfolio for decades for their passive-income…

Read more »

woman data analyze

The Market Is Wrong About This 1 Value Stock

Restaurant Brands International (TSX:QSR) stock is getting cheap after the latest correction in shares.

Read more »

Airport and plane

Is Air Canada Stock Finally a Buy This Season?

When you are investing in a prospective recovery, it’s a good idea to watch for favourable industry trends.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Earn $2,500 Per Year on $40,000

Investors have an opportunity to secure high yields while reducing risk in their TFSA portfolios.

Read more »

Illustration of bull and bear

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

These growth stocks all trade undervalued and have tonnes of long-term potential, making them some of the best to buy…

Read more »

Volatile market, stock volatility
Metals and Mining Stocks

Weathering Volatility: Strategies for Success With TSX Stocks

The key to handling volatility is changing your asset mix. For example, if you suspect a market downturn, you can…

Read more »

Path to retirement
Dividend Stocks

Retirement Wealth: 2 Top Dividend Stocks for TFSA Investors

Parking a sizable portion of your savings in reliable dividend stocks is a time-tested wealth-building strategy appropriate for a wide…

Read more »

sale discount best price
Tech Stocks

2 Growth Stocks to Buy Every Time They Go on Sale (Like Now)

The right growth stocks are worth buying in almost any market, but they are especially attractive when they come with…

Read more »