In this article, we will discuss 10 Cheap Value Stocks to Invest In, According To Seth Klarman.
No value in crypto, but the focus should be on artificial intelligence. That’s the stance held by value investing magnet Seth Klarman. Like most conservative investors, the billionaire investor employs a value approach, looking for stocks and other assets that are trading below their intrinsic value and purchasing them at a discount.
The value investment strategy has been the catalyst behind Baupost Group, generating average returns of 20% over the last decade. The impressive run also stems from an aggressive investment strategy that tries to profit from emerging trends. That’s evident by Klarman’s moves around artificial intelligence in the hedge fund portfolio.
It’s no secret that Klarman has reiterated his admiration for artificial intelligence. Nevertheless, he insists that he is approaching the technology “with open eyes, with great humility, with a sense that profound change is upon us,” That’s evident given that Baupost Group does not hold significant stakes in some of the biggest plays around revolutionary technology.
READ ALSO: 10 Cheap Value Stocks to Invest in According to Warren Buffett and 14 Best 52-Week High Stocks To Buy According to Analysts.
While optimistic about AI, the Baupost Group CEO has clarified that he does not believe the burgeoning AI industry should be left to its own devices. Instead, he is one of the advocates calling on regulators and CEOs not to let “this get out of control.” If unchecked, the billionaire investor believes the technology could result in mass unemployment and, in the worst case scenario, “will sink the economy,”
While Klarman is bullish about artificial intelligence opportunities, he has touted opportunities in the credit and real estate sector. The Baupost Group CEO and portfolio manager insist opportunities are cropping up as interest rates decrease, resulting in improved consumer purchasing power.
“Real estate, in general, has been fruitful, not only in buying buildings but also indebted real estate-related companies, especially in Europe and Asia,” he said.
Even as Klarman remains bullish about the overall equity market outlook, he has not engaged in a buying spree as a value investor. Part of the cautious approach involves valuations in the equity markets getting out of hand. Most stocks are trading at premium valuations, with major indices near all-time highs.
In addition to valuation concerns, he has warned of increased government meddling in the markets more than ever. The billionaire investor has raised concerns about increased government intervention, making it difficult to tap into value investments in the market. “It’s almost like we’ve sort of outlawed failure — or at least financial failure,” he said. “That leads to a buildup of moral hazard. If nobody thinks anything can go wrong, they’ll take crazy risks because they’ll get bailed out.”
Nevertheless, Baupost Group’s investment portfolio is still rife with cheap value stocks to invest in. The adjustments that have come into play in recent quarters have affirmed the focus on investment plays trading below their intrinsic values. Recently, he has reduced his holdings in stocks with premium valuations and shifted his focus to lesser-known investments. His focus has been stocks trading at highly discounted valuations characterized by low price-to-earnings multiple.
Seth Klarman of Baupost Group
Our Methodology
To compile the list of 10 affordable value stocks to invest in, according to Seth Klarman, we analyzed Baupost Group’s portfolio, concentrating on stocks with a Forward P/E ratio of less than 20, as of January 17. We then examined the stocks on why they stand out, according to Seth Klarman. Finally we ranked the stocks in ascending order based on Baupost Group’s holdings.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Cheap Value Stocks to Invest in, According To Seth Klarman
10. Restaurant Brands International Inc. (NYSE:QSR)
Number of Hedge Fund Holders: 29
Forward Price to Earnings Multiple: 11.24
Baupost Group’s Holdings: $2.04 Million
Restaurant Brands International Inc. (NYSE:QSR) is a quick-service restaurant company. After going down by about 20% in 2024, the stock appears to be trading at a significant discount, going by its price-to-earnings multiple of 11. The underperformance came as the restaurant chain faced immense pressure and competition from traditional and emerging players offering aggressive promotions.
Nevertheless, management is working round the clock to improve performance, going by the 2.3% growth in same-store sales under the core Tim Horton’s business. Global same-store sales also rose by 2.3% in the third quarter. The growth comes from Restaurant Brands International Inc. (NYSE:QSR) embarking on an acquisition drive aimed at expanding revenue and net income base. Restaurant Brands has already completed the acquisition of Popeyes China and the Carrols Restaurant Group.
Restaurant Brands International Inc. (NYSE:QSR) also plans to spend $400 million to revitalize its brands. Restaurant Brands International has already invested in improving in-store technology and mobile platforms, which should enhance customer convenience and experience. International growth prospects for Restaurant Brands include growing its Burger King business in Japan.
9. Herbalife Ltd. (NYSE:HLF)
Number of Hedge Fund Holders: 32
Forward Price to Earnings Multiple: 3.10
Baupost Group’s Holdings: $36.85 Million
Herbalife Ltd. (NYSE:HLF) is a packaged foods company that provides health and wellness products. It offers products in weight management, targeted nutrition, literature, and promotional items. The stock was under pressure, dropping by 47% in 2024 due to competitive pressures in the wellness industry and internal corporate hurdles. The slump has left the stock trading at a discount with a price-to-earnings multiple of 3.10.
Herbalife Ltd. (NYSE:HLF) delivered disappointing third-quarter results, with sales down by 3% as net income fell to 58 million from $65 million a year ago. Amid the disappointing results, Herbalife is confident that its growing distributor network and enhanced training initiatives will fuel future sales growth. Herbalife has embarked on a restructuring program to increase productivity, streamline the workforce, and bring leadership closer to its markets.
Starting in 2025, the Restructuring Program is anticipated to generate yearly savings of at least $80 million, with at least $50 million expected in 2024. Likewise, Herbalife Ltd. (NYSE:HLF) has made impressive strides to trim its debt level as it continues to clean its balance sheet. Its leverage ratio has dropped to 3.3 times and is on course to drop to 3.0 in 2025 as the company works on relieving itself of debt load. The health and wellness product company is also targeting $1 billion in debt reduction over the next five years.