What You Need To Know About Baupost Group’s Top Stock Picks: from Allergan to EMC

Baupost Group is one of the top hedge funds of the world, with approximately $27 billion in assets under management. The Boston-based firm is run by its founder, Seth Klarman, a Harvard Business School graduate and famed author of the fundamental investing bible, Margin of Safety. Quite recently, Baupost filed its 13F for the fist quarter of fiscal 2016, disclosing its long equity stakes as of March 31. The equity portfolio was valued at $6.92 billion at the time, up from $5.51 billion at the end of the previous quarter. While diversified, the portfolio had a focus on information technology and energy stocks, which accounted for roughly 40% and 28% of the total holdings, respectively. So, let’s take a look into the fund’s top picks for the second quarter of 2016, and into some recent events involving these companies.

Our research determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5 Allergan plc Ordinary Shares (NYSE:AGN)

– Number of shares owned by Baupost as of March 31: 1.72 Million

– Value of Baupost’s stake as of March 31: $461.4 Million

The fifth spot in Klarman’s list was occupied by a newcomer: Allergan plc Ordinary Shares (NYSE:AGN). The new stake accounted for more than 6.6% of the fund’s equity portfolio, and made it one of the top 10 hedge fund investors of record as of March 31. An ever larger stake was the one held by John Paulson’s Paulson & Co, which last disclosed ownership of 5.41 million shares of the company, worth roughly $1.45 billion by the end of the first quarter. Since the first quarter ended, shares of Allergan have fallen more than 14.3%, mostly on the back of the cancellation of the Pfizer Inc. (NYSE:PFE) deal. Last week, however, shares recuperated some of the lost ground after the company delivered first quarter EPS of $3.04, beating the Street’s consensus by $0.01 – even though revenue of $3.8 billion missed estimates by $160 million. In addition, the company’s Board authorized up to $10 billion in new stock repurchases; about half of that could be spent over the next six months, if market conditions are favorable, the company said.

#4 Antero Resources Corp (NYSE:AR)

– Number of shares owned by Baupost as of March 31: 21.5 Million

– Value of Baupost’s stake as of March 31: $534.8 Million

Even in spite of a 12% increase in Baupost’s stake, Antero Resources Corp (NYSE:AR) remained in the same position as a quarter earlier. However, the value of the stake rose considerably, as the shares gained 14.08% over the first quarter. According to our data, Baupost was, by far, the largest hedge fund shareholder of record in the company, trailed from far behind by Bob Peck and Andy Raab’s FPR Partners, which last declared holding 9.3 million shares. Antero’s stock continued to surge over the second quarter of the year, posting a 6.8% return so far. However, the shares experienced considerable weakness toward the end of April, following a first quarter earnings miss announced on April 27. But, over the past few days, the tumble was somewhat offset by a recuperation in energy prices, which helped the sector as a whole.

 #3 ViaSat, Inc. (NASDAQ:VSAT)

– Number of shares owned by Baupost as of March 31: 11.53 Million

– Value of Baupost’s stake as of March 31: $847.45 Million

Also occupying the same spot as in the fourth quarter of 2015 was ViaSat, Inc. (NASDAQ:VSAT), in which Baupost’s didn’t change its stake over the first quarter of 2016. However, the value of the stake rose substantially, as the stock gained 20.44% over the first quarter. Interestingly, over the second quarter, shares came to a standstill, and are almost flat since the beginning of April, even though they spiked in late April, after news transcended that the company had been included in the S&P MidCap 400 Index. Same as in Antero’s case, Baupost was the largest shareholder in the company, among the firms that we track, trailed by FPR Partners, which last disclosed ownership of 5.99 million shares, and Mason Hawkins’ Southeastern Asset Management, with 4.63 million shares.

#2 Cheniere Energy, Inc. (NYSEMKT:LNG)

– Number of shares owned by Baupost as of March 31: 29.84 Million

– Value of Baupost’s stake as of March 31: $1 Billion

Cheniere Energy, Inc. (NYSEMKT:LNG) traded places with EMC Corporation (NYSE:EMC) over the first quarter of 2016, losing its front-runner spot from the fourth quarter. However, Baupost still seemed very bullish on the NYSE MKT-traded stock, to which it boosted its exposure by 14% over the first quarter, making the position account for more than 14.5% of its equity portfolio’s value. This stock, first acquired during the first quarter of 2014, has lost more than 36% of its value since April 2014. In fact, over the first quarter of 2016, the shares fell 9.18%; however, since the period ended, the stock has recuperated 2.54%, helped by buyout talks, and in spite of a massive first quarter earnings and revenue miss reported in early May. Importantly, last week, the stock spiked once again, on news that Jack Fusco had been named as the company’s new President and CEO. Also bullish on Cheniere seemed Carl Icahn’s Icahn Capital LP, which held 32.68 million shares of the company by March 31, and Matthew Sidman’s Three Bays Capital, which started a new stake in the company, comprising 2.45 million shares, over the first quarter.

#1 EMC Corporation (NYSE:EMC)

– Number of shares owned by Baupost as of March 31: 51.85 Million

– Value of Baupost’s stake as of March 31: $1.38 Billion

After a 77% increase in Baupost’s stake, EMC Corporation (NYSE:EMC) became the fund’s most valuable long equity position, comprising almost 20% of its portfolio’s value. As of March 31, the fund was the largest shareholder in our database, followed by Paul Singer’s famed fund, Elliott Management, which last disclosed ownership of 42 million shares of the company. Since the first quarter ended, shares of EMC have gained almost 4%, even in spite of having reported a top and bottom line miss (for the first quarter) on April 20. In fact, the shares rallied anyways after the earnings call, helped by an earnings beat by VMware, Inc. (NYSE:VMW) and the confirmation that the Dell deal remained on track. Earlier this week, EMC reiterated its $0.115 per share quarterly dividend, payable on July 22, for shareholders of record as of July 1.

 Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.