APR 22, 2013 3:36pm ET

John Paulson Sees Radian Surging More Than 80% by 2015

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John Paulson, the billionaire hedge fund manager who built his fortune betting on a decline in the U.S. housing market in 2007, said he expects a surge in the stock of mortgage insurers led by Radian Group Inc.

Radian and MGIC Investment Corp. issued stock and bonds this year to replenish capital that was lost on mortgage policies sold before the bottom of the housing crash. Both companies have rallied as the real estate market rebounded. Paulson has bets on those companies and Genworth Financial Inc., which has a mortgage insurance unit.

Mortgage insurers “are all experiencing improving fundamentals, as their performance is tied to the housing recovery, and should offer considerable upside if recent positive housing trends continue,” Paulson & Co. said in a letter to clients that was obtained by Bloomberg News.

Radian is up about 75% this year. Paulson said it bought stock in the Philadelphia-based company at an average price of $6 a share late last year, and added stock at $8 each in the offering this year.

“We believe it can rise to $20 by 2015,” Paulson said in the letter to investors in the Paulson Recovery Funds.

MGIC rallied 4.8% to $4.99, bringing the gain for the Milwaukee-based company this year to 88%. Richmond, Va.-based Genworth climbed 2.9%, and is up about 25% since Dec. 31.

Mortgage insurers cover lenders’ losses when homeowners default and foreclosures fail to recoup costs. Home values rose 10.2% in the 12 months through February, the biggest gain in almost seven years, according to Irvine, Calif.-based CoreLogic Inc.

Paulson also highlighted holdings in insurers CNO Financial Group Inc. and Hartford Financial Services Group Inc. Hartford has gained 20% this year, while CNO is up 15%.

“Certain types of insurers are currently trading at low relative valuations and should offer considerable upside in an improving economic environment,” Paulson said.

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