BP plc (ADR) (BP), Oracle Corporation (ORCL): Value Investor Seth Klarman’s Shakeups

Seth Klarman’s Baupost Group, led by the famed value investor and author of Margin of Safety, recently revealed its public equity portfolio in its quarterly filing with the SEC. Klarman founded Baupost in 1983, and now has assets under management of nearly $30 billion. Outlined below are five takeaways from Baupost’s portfolio, which include some interesting additions (check out Klarman’s cheap stock picks).

BP plc (ADR) (NYSE:BP)Baupost kept BP plc (ADR) (NYSE:BP) as its top stock holding after a 56% increase in shares owned. The oil and gas supermajor now makes up 23.3% of Baupost’s 13F portfolio. BP plc (ADR) (NYSE:BP) reported below-consensus EPS for the first quarter, which has kept the stock in check year to date, up only 2.8% compared to the S&P 500′s 15.6% upward move for the same time period.

Part of the company’s initiatives includes offloading non-core upstream properties, having already sold off its refinery in Carson, Calif. and Texas City, Tex. refineries, which hold half of its U.S. capacity. These divestures will help the company pursue other initiatives in Russia. The other appealing thing about BP plc (ADR) (NYSE:BP) is its 5% dividend, which is well above most of the other oil and gas Supermajors.

Another key pick for Baupost was American International Group Inc (NYSE:AIG), which is the hedge fund’s third-largest holding, following a 69% increase in shares owned. American International Group Inc (NYSE:AIG) now makes up 14.8% of Baupost’s13F portfolio. In addition, American International Group Inc (NYSE:AIG)’s key segment, property & casualty (making up 70% of revenues), saw operating income up 76.3% during 1Q from the year-ago quarter. The stock also continues to trade at a steep discount to book value, with a P/B of only 0.6. Meanwhile, another hedge fund manager, Bruce Berkowitz of Fairholme, has serious conviction in the stock, with 43% of Fairholme’s portfolio invested in the stock going into 2013 (see what else Berkowitz is up to).

One of Baupost’s selloffs was Oracle Corporation (NASDAQ:ORCL), which at the end of 2012 was the fund’s third-largest holding. After a 67% selloff of shares owned during the first quarter, Oracle Corporation (NASDAQ:ORCL) is now its seventh-largest holding. Part of the selloff could be a result of Oracle Corporation (NASDAQ:ORCL)’s slowing growth and high debt load. After having grown at an annualized 17% over the last the five years, analysts expect the tech company to grow at 10% over the next five.

Oracle Corporation (NASDAQ:ORCL) is expected to have to pay some $1.25 billion in debt repayment for fiscal 2013. It faces competition in most of its markets from IBM, Microsoft, Sybase, SAP and Teradata, and in its hardware segment, from the likes of IBM and Hewlett-Packard. Oracle Corporation (NASDAQ:ORCL) also recently lost its patent infringement claims against Google Inc (NASDAQ:GOOG) for using Sun Java code to build Android. The headwinds remain afoot for this tech giant.

A couple new additions to the Baupost portfolio include Elan Corporation, plc (ADR) (NYSE:ELN) and DIRECTV (NASDAQ:DTV) , ranking 8th and 17th in Baupost’s portfolio, respectively. Elan Corporation, plc (ADR) (NYSE:ELN) is a leading worldwide specialty pharmaceutical company. S&P sees a 49% decline in 2013 revenues for the company due to the conversion of Tysabri revenues to a royalty-based structure from a co-ownership arrangement. This in part could lead to the stock’s becoming undervalued.

Elan has agreed to buy a 21% stake of Theravance’s royalty rights to some respiratory programs partnered with GlaxoSmithKline for a $1 billion upfront payment. In April 2013, the company repurchased 89 million shares, retiring 14% of its shares. Although Klarman is very bullish on the stock, the analysts’ predictions have the company growing EPS at an annualized 2.2% over the next five years.

Some of the reasons that Klarman might find DIRECTV (NASDAQ:DTV) attractive is its big initiatives for breaking out of the saturated pay-TV market. Its strategies include streamlining cost structure and introducing online video streaming. The company also plans to launch two more satellites in 2014 and 2015, which will further improve its service quality.

The real focus of DirecTV going forward should be Latin America. Some of its key initiatives in the region include penetration of the untapped pay-TV market and implementing wireless broadband and online on-demand video facilities. DirecTV also appears to be super cheap, with a PEG of only 0.56. Billionaire Warren Buffett also loves DirecTV (see why Buffett loves the stock).

The bottom line

Seth Klarman is a famed value investor and he’s up to his old tricks, finding deep value opportunities in a number of stocks last quarter. He kept BP plc (ADR) (NYSE:BP) as his top pick, which I also like. This stock pays investors an impressive dividend yield and still appears to have some overhang from the Deep Horizon incident back in 2010 that could lead to future price appreciation. Meanwhile, I also like American International Group Inc (NYSE:AIG), which appears to be undervalued. Klarman’s selloff of Oracle Corporation (NASDAQ:ORCL) comes as the tech giant might be seeing slowing growth, while his new positions in Elan and DirecTV are great undervalued plays worth checking out.

The article Value Investor Seth Klarman’s Shakeups originally appeared on Fool.com

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends American International Group and DirecTV. The Motley Fool owns shares of American International Group and Oracle. and has the following options: Long Jan 2014 $25 Calls on American International Group. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
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

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

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!