Billionaire Seth Klarman’s Latest Stock Picks

BAUPOST GROUPThe Baupost Group, managed by Seth Klarman, filed its 13F with the SEC for the second quarter of 2012 this week. Klarman is a value investor known for writing Margin of Safety. According to Insider Monkey’s calculations, the fund moved heavily into stocks with a couple large new positions and several other top holdings from the previous quarter being increased. Here are some trends that we see in the Baupost Group’s portfolio for this quarter versus last quarter:

Large-cap value. Baupost added substantially to its positions in BP Plc (NYSE:BP) and Hewlett Packard (NYSE:HPQ). BP made our list of the ten most popular energy stocks among hedge funds for the first quarter and it’s easy to see why: because of poor sentiment, it trades at only eight times earnings even though the company pays a dividend yield of 4.5%; it’s easy to see why Klarman agrees with our judgment from last month that BP is an energy stock for long term investors. Hewlett-Packard has a smaller market capitalization of “only” $39 billion, but it too pays a good dividend yield for its industry- 2.7%- and yet still trades at eight times trailing earnings. HP is struggling as revenue and earnings fall, but as with BP Baupost appears to think that the stock has fallen from its fundamental value and we think they might be right.

Technology. We’ve covered HP already, which was a more than 50% increase in share count for the fund. Perhaps this move wasn’t motivated only by good valuation multiples but also by bullishness on technology, as Baupost initiated a 15.8 million share position in Oracle (NASDAQ:ORCL). The trailing P/E here is 16, which is only a moderate level in pure value terms, but Oracle recorded 8% earnings growth in its most recent quarter compared to the same period in the previous year and based on analyst estimates the forward P/E is only 10 and the five-year PEG is 1. This pick has to deliver growth in order to justify outperforming the market, and Klarman seems to agree with sell-side judgments that it will get there. Perhaps the fund is making specific statements about HP and Oracle, but it is also possible that this move is intended to build more exposure to technology.

Gold. Baupost increased its stake in Allied Nevada Gold (NYSE:ANV) from 4 million shares to 5.1 million, and added 6 million shares of NovaGold (NYSE:NG) for a total of 16 million in that stock. These represented some fairly large positions compared to the sizes of the companies- their market caps are only $2.4 billion and $1.2 billion respectively. Each has also seen its share price drop over the last year and is down over 30%. Allied Nevada is at least profitable, and is supposed to rebound in the future as its forward P/E is only 12, but NovaGold is not expected by sell-side analysts to generate positive earnings per share this year or next year. By increasing these positions Baupost appears to be committing to a gold thesis rather than evaluating these companies on historical performance as a signal of value.

Genworth. The fund took a large position of 15 million shares in Genworth Financial (NYSE:GNW). The insurance and wealth management company has dropped nearly 30% this year and has missed earnings for three quarters in a row. Perhaps Klarman thought the market had overreacted, and looking at valuation multiples it seems that there could be a value case here. Genworth trades at about a sixth of the book value of its equity and only four times forward earnings estimates. Even on a trailing basis the P/E is 7. Genworth isn’t a great company but the fund is likely snapping up the shares based in value.

Baupost’s movements here show a clear value focus. BP, HP, and Genworth are textbook value stocks with P/E ratios less than 10 and while they are troubled it’s easy to see them bouncing back. Oracle we’re not too sure about- it may be being bought on a cheap growth basis, but combined with HP it’s possible the fund is also pushing a tech thesis. And of course we’ve discussed gold as an area where Baupost appears to be taking a macro stance and even increasing its holdings of a currently unprofitable commodities-driven company by 60%. That’s probably the theme we’d least recommend to investors.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!