An Analysis of Seth Klarman and Baupost Group’s Latest Stock Holdings

Seth Klarman usually doesn’t invest in the stock market. At the end of September he had about $1.7 Billion worth of stocks in his portfolio, which is less than 8% of the $23 Billion he manages. When he buys stocks, which are riskier than are his other investments, there usually are very good reasons backing that decision. Insider Monkey, your source for free insider trading data, analyzed the 16 stocks Seth Klarman’s Baupost Group had in its portfolio at the end of September:

BAUPOST GROUP

1. Alere Inc (ALR): Alere Inc is a new purchase for Klarman with an average cost of $30.93. Eli Adashi, an insider of the company, bought ALR at the end of August at $28.80. The stock went up by 33.3% since. Klarman’s return is 24.2%.

2. Alliance One International (AOI): Seth Klarman had included Alliance One in his portfolio at the end of 2007. During the second quarter of 2009, he increased his holdings in Alliance One. His average cost is around $3.50. He initially bought this stock when it went down to $4 from $10. He then added to his position when the stock price dipped below $4, and hovered between $2.50 and $4.00. Currently Alliance One Intl trades at $4.05.

3. Audiovox Corp (VOXX): Seth Klarman bought Audiovox Corp during the first quarter of 2008 at an average cost of $10.68. He then reduced his position during the third quarter of 2008 by 10%. He then reduced by another 5% during the third quarter of 2009. Finally this year, VOXX position was cut by more than 40%. The stock currently trades at $8.04, and has been a loser for Klarman. Two insiders have been selling Audiovox shares during the past 3 months.

4. Breitburn Energy Partners (BBEP): This has been a profitable investment for Klarman but his returns suffered a lot because he was investing early in BBEP. He initially had around $13 million worth of BBEP at the beginning of 2008. The stock price was around $20. Then in September 2008, the stock price started to decline sharply because of the financial crisis. Baupost increased its BBEP holdings around by 5.5 million shares with an average cost north of $15. Klarman was happy with the 30+% decline in stock price. However, the stock price kept declining during the fourth quarter and went as low as $5 and closed 2008 at around $7. Klarman added another 2 million shares. Those investments were the most profitable, he was early with his initial 5.5 million share purchase. Today, Breitburn Energy Partners trades at $21 and Klarman has been trimming his holdings.

5. Capitalsource Inc (CSE): Capitalsource has been one of Klarman’s biggest investments in 2009. He bought nearly 30 million shares at a cost of $1.20. Today these shares trade at $7.56.

6. Domtar Corp (UFS): Domtar has been a large investment too but nowhere near as profitable as Capitalsource Inc investment. Seth Klarman had 18 million shares, trading at $7 per share at the beginning of 2008. By June 2008, he added 4 million more because the price had fallen below $6. During the fourth quarter of 2008, Domtar was trading below $2 and Klarman added 11 million more shares to his portfolio. His loss from the original investment was around $100 million, which explains his 10% loss in 2008. Domtar kept declining below $1 in the early months of 2009. Klarman then added another 7 million shares to his portfolio. These were great investments. The stock had a reverse split of 1:12 in June 2009. By the end of 2009 Domtar shares were trading above $50 or $4.50 pre-reverse split price. Today, it’s $79, very close to its early 2008 price. So, Klarman nearly recovered his losses from his initial $100+ million investment. His additional $30 million investment during the fourth quarter of 2008 and first quarter of 2009 made him $100+ million. Recently he has been reducing his Domtar positions.

7. Energy XXI (Bermuda) Ltd (EXXI): He has only $6 million of EXXI in his portfolio. These shares were added during the second quarter of 2010.

8. Enzon Pharmaceuticals Inc (ENZN): Klarman has been adding Enzon shares since the third quarter of 2009. Initially it was trading around $8.5, and today it’s $12.35. Klarman has nearly 10.4 million shares.

9. Ituran Location and Control (ITRN): Klarman had half a million shares of Ituran in 2007. He built it into a 1.7 million share position during the third quarter of 2008 when the shares were trading below $11 per share. He hasn’t changed his position since then. The stock price went down to $7 at the end of 2008, however since then it’s been increasing. Currently Ituran trades at $17.87, giving Klarman a more than 60% return in a little more than 2 years.

10. Liberty Media Starz (LSTZA): This is one of the 10 stocks enormously owned by hedge funds. It’s also related to Whitney Tilson’s Netflix short. During the third quarter of 2010, Seth Klarman more than doubled his Liberty Media Starz position and now owns 1 million shares.

11. Multimedia Games Inc (MGAM): Multimedia Games is one of Klarman’s long-term holdings. He had 2 million shares at the end of 2007 and built it into a 2.6 million share position during first quarter of 2008. The stock price was above $8 at the end of 2007 and it fell below $6 at the beginning of 2008. So what happened since? Klarman didn’t sell or buy a single share since. The stock price dipped below $2 in early 2009, and now trades at $5.70. Clearly Klarman didn’t have enough “margin of safety” in this investment. An insider, Stephen Greathouse, purchased 25,000 shares at $4.58 at the beginning of December.

12. News Corp Cl A (NWSA): News Corp was Klarman’s largest stock holding during 2009. At one point he owned 27.5 million shares trading at $6 during March 2009. Today News Corp’s stock  price is $14.68 and Klarman reduced his holdings to 19 million shares. He was probably selling these shares during the fourth quarter since they were trading near $15.

13. Solar Capital Ltd (SLRC): This is a closed-end investment company that went public in February. Klarman probably paid around its IPO price of $16 for 2 million shares. During the third quarter he sold 250,000 shares at around $20. Currently Solar Capital trades at $24.80 with a $0.60 quarterly dividend.

14. Syneron Medical Ltd  (ELOS): This has been one of Klarman’s long-term mediocre investments. He had 3 million shares at $15 per share at the beginning of 2008. Currently stock around $10 and Klarman has only 1.5 million shares.

15. Theravance Inc (THRX): Klarman bought more than 5 million shares of THRX at the beginning of 2008 below $11 per share. Later he increased his position to 10 million, paying around $12-13 per share during 2009. Finally last year he added another 3 million shares at around $13. Today he has 13 million shares and the stock last traded at $24.43. He made nearly $150 million last year from this position.

16. Viasat (VSAT): Klarman added Viasat to his portfolio during the second quarter of 2008 at around $20 per share.  The position didn’t change until the third quarter of 2009. By the end of 2009, he had nearly 5 million shares. He kept adding to his position, paying around $30-35 in 2010 and doubling his holdings. Now the stock trades at $44.85 and Klarman made more than 40% in his 2010 investments in VSAT. Viasat is Klarman’s largest stock holding right now.

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