In this article, we discuss 10 value stocks in Seth Klarman’s latest portfolio.
There are few value investors who have enjoyed as much success in the stock market as Seth Klarman of Baupost Group. The veteran investor leads one of the largest hedge funds in the world, with a portfolio value of over $10 billion at the end of the fourth quarter of 2021. Klarman recently released an annual letter to investors, outlining his strategy for the turbulent market ahead. The chief of Baupost Group said that his fund was “especially suited” to investing during times of disruption, uncertainty, and unpredictability.
Klarman Focused on Long-Term Growth
Some of the broader trends that Klarman noted were worth following included political uncertainty, government interventions, climate change, and technological disruptions. Despite focus on these high growth areas, Klarman has clarified that his fund remains committed to finding long-term value in stocks, carefully considering valuations and business fundamentals to grow the portfolio over a relatively longer term, like three to five years, instead of focusing on high-flying stocks that go up and down in a week or a few months time.
Klarman, nicknamed the Oracle of Boston, stressed that he viewed the present market as characterized by “stretched valuations, deep complacency, and a host of looming risks”. As interest rates rise, investors who follow Klarman are eagerly looking at how these comments translate into action in the stock market. Some of the top value stocks in the portfolio of Seth Klarman at the end of December 2021 included Willis Towers Watson Public Limited Company (NASDAQ:WTW), Intel Corporation (NASDAQ:INTC), and Nexstar Media Group, Inc. (NASDAQ:NXST), among others discussed in detail below.
Klarman, while acknowledging in his letter that he believed that rising inflation and the related possibility of higher interest rates was posing a “real danger” to financial markets, also highlighted that Baupost Group had purchased hedges to protect itself from this crisis. The investor went as far as to say that many investors over the past decade or so have piled into speculative holdings that would one day resemble “roach motels”.
Our Methodology
The companies listed below were picked from the investment portfolio of Baupost Group at the end of the fourth quarter of 2021. The stocks that have a price-to-earnings (PE) ratio of less than 25 were preferred for the list. The exact PE Ratio is mentioned alongside each stock to provide readers with some additional context for their investment decisions.
Data from around 900 elite hedge funds tracked by Insider Monkey at the end of December 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Seth Klarman of Baupost Group
Value Stocks in Seth Klarman’s Latest Portfolio
10. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Number of Hedge Fund Holders: 50
PE Ratio: 24.75
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) provides software products and related services. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), with 15.7 million shares worth more than $1.2 billion.
According to the latest filings, Baupost Group owned over 3.8 million shares of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) at the end of the fourth quarter of 2021 worth $312 million, representing 3.08% of the Q4 portfolio.
Just like Willis Towers Watson Public Limited Company (NASDAQ:WTW), Intel Corporation (NASDAQ:INTC), and Nexstar Media Group, Inc. (NASDAQ:NXST), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is one of the stocks on the radar of elite investors.
In its Q4 2020 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) was one of them. Here is what the fund said:
“SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the leading provider of services to the financial sector. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) owns several companies including ALPS Fund Services, Advent, GlobeOp, Intralinks, Eze, and DST. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) operates an array of technology offerings for the financial services industry and provides mission-critical software. We like the company’s recurring revenue, high retention rates, strong free cash flow generation, and high rates of return on capital. Regulatory pressure, the need for greater transparency, and the growth of its core asset classes have led to greater demand for its services.”
9. NortonLifeLock Inc. (NASDAQ:NLOK)
Number of Hedge Fund Holders: 36
PE Ratio: 18.04
NortonLifeLock Inc. (NASDAQ:NLOK) provides cyber safety solutions. Latest data shows that Baupost Group owned more than 5.7 million shares of the company at the end of the fourth quarter of 2021 worth over $150 million, representing 1.48% of the portfolio.
Hedge funds have been loading up on NortonLifeLock Inc. (NASDAQ:NLOK) stock. At the end of the fourth quarter of 2021, 36 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in NortonLifeLock Inc. (NASDAQ:NLOK), up from 34 in the previous quarter worth $1.2 billion.
8. Veritiv Corporation (NYSE:VRTV)
Number of Hedge Fund Holders: 20
PE Ratio: 12.67
Veritiv Corporation (NYSE:VRTV) provides packaging products and services. Hedge funds have been piling into the stock in recent months. At the end of the fourth quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $511 million in Veritiv Corporation (NYSE:VRTV), compared to 11 in the preceding quarter worth $354 million.
Regulatory filings show that Baupost Group owned more than 3.5 million shares of Veritiv Corporation (NYSE:VRTV) at the end of December 2021 worth $436 million, representing 4.31% of the portfolio.
7. Qorvo, Inc. (NASDAQ:QRVO)
Number of Hedge Fund Holders: 44
PE Ratio: 12.63
Qorvo, Inc. (NASDAQ:QRVO) makes and sells semiconductor products. Securities filings reveal that Baupost Group owned over 5.9 million shares of the company at the end of December 2021 worth $929 million, representing 9.18% of the portfolio.
Top hedge funds are bullish on Qorvo, Inc. (NASDAQ:QRVO). Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Qorvo, Inc. (NASDAQ:QRVO), with 971,008 shares worth more than $151 million.
6. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 83
PE Ratio: 11.52
Micron Technology (NASDAQ:MU) makes and sells memory and storage products. The hedge fund sentiment around the stock is overwhelmingly positive. At the end of the fourth quarter of 2021, 83 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Micron Technology (NASDAQ:MU), up from 63 in the preceding quarter worth $3.8 billion.
The hedge fund of Seth Klarman entered the first quarter of 2022 with over 3.2 million shares of Micron Technology (NASDAQ:MU) in its portfolio worth more than $302 million, representing 2.98% of the portfolio.
Along with Willis Towers Watson Public Limited Company (NASDAQ:WTW), Intel Corporation (NASDAQ:INTC), and Nexstar Media Group, Inc. (NASDAQ:NXST), Micron Technology (NASDAQ:MU) is one of the stocks that institutional investors are buying.
In its Q3 2021 investor letter, Hazelton Capital Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:
“It’s hard to explain how shares of Micron Technology (NASDAQ:MU), manufacturer of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology (NASDAQ:MU) trades at just 8x 2022 estimated earnings. Micron Technology (NASDAQ:MU) is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron Technology (NASDAQ:MU) benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
5. Nexstar Media Group, Inc. (NASDAQ:NXST)
Number of Hedge Fund Holders: 41
PE Ratio: 9.67
Nexstar Media Group, Inc. (NASDAQ:NXST) is a television broadcasting and digital media group. It is one of the top media stocks in the finance world. Among the hedge funds being tracked by Insider Monkey, Canada-based investment firm Cardinal Capital is a leading shareholder in Nexstar Media Group, Inc. (NASDAQ:NXST), with 1.1 million shares worth more than $169 million.
According to the latest filings, Baupost Group owned over 1.7 million shares of Nexstar Media Group, Inc. (NASDAQ:NXST) at the end of the fourth quarter of 2021 worth $258 million, representing 2.55% of the portfolio.
In its Q1 2021 investor letter, Richie Capital Group, an asset management firm, highlighted a few stocks and Nexstar Media Group, Inc. (NASDAQ:NXST) was one of them. Here is what the fund said:
“Nexstar Media Group, Inc. (NASDAQ:NXST) – The television broadcasting and digital media company reported strong Q4 earnings with revenue growing 25% over the year prior. The company set records across every key financial metric and exceeded management outlook. For the full year, the company boosted free cash flow by 191% partly as a result of the full integration of their Tribune Media acquisition. Nexstar Media Group, Inc. (NASDAQ:NXST) still trades at an attractive valuation and offers a 17% FCF yield. The Supreme Court’s recent ruling allowing the FCC to loosen local media ownership restrictions will support more consolidation within the industry. This is a positive for Nexstar Media Group, Inc. (NASDAQ:NXST) who is well positioned to acquire strategic assets. You can find our original investment thesis here.”
4. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 72
PE Ratio: 9.56
Intel Corporation (NASDAQ:INTC) markets computer products and technologies. Latest data shows that Baupost Group owned more than 18 million shares of the company at the end of the fourth quarter of 2021 worth over $928 million, representing 9.17% of the portfolio.
Hedge funds are loading up on Intel Corporation (NASDAQ:INTC) stock. At the end of the fourth quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Intel Corporation (NASDAQ:INTC), compared to 66 in the previous quarter worth $6.4 billion.
In its Q4 2021 investor letter, Third Point Management, an asset management firm, highlighted a few stocks and Intel Corporation (NASDAQ:INTC) was one of them. Here is what the fund said:
“2021 was a highly productive year for Intel‘s new CEO, Pat Gelsinger. Despite the stock’s tepid results, we see a compelling, underappreciated fundamental story. Intel’s “brain drain” – a key part of our thesis when we first sought to help the company confront its long-time underperformance – appears to be reversing. Since joining Intel Corporation (NASDAQ:INTC), Mr. Gelsinger has not only brought back prominent Intel former employees but has also attracted talents from competitors such as AMD, Nvidia, Apple, and, most recently, Micron’s stellar Chief Financial Officer, David Zinsner.
We are encouraged by Intel’s aggressive investment plan, including a recently announced fabrication plant in Ohio and acquisition of Tower Semiconductors. We knew from the start that Intel’s turnaround would be complex and lengthy, and we have been pleased to see Mr. Gelsinger sacrifice near-term earnings for long-term growth.
Finally, after a series of blunders across its PC and Server product lines, Intel Corporation (NASDAQ:INTC) is finally receiving good reviews for one of its upcoming processors: Alder Lake. Tom’s Hardware, a preeminent hardware publication, called Alder Lake “a cataclysmic shift in Intel’s battle against AMD’s potent Ryzen 5000 chips.” While this is just one product across a broad lineup, and given it will take time to achieve leadership across them all, we are encouraged by these tangible signs of progress under Mr. Gelsinger’s leadership. With talent returning, an improving product suite, and a willingness to invest for growth, we believe Intel’s prospects have turned the corner. We expect that the company’s upcoming analyst day will be an ideal time for Mr. Gelsinger to articulate the progress he has made and begin to reset expectations for Intel Corporation (NASDAQ:INTC).”
3. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Number of Hedge Fund Holders: 66
PE Ratio: 6.81
Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a London-based insurance broker. Top hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm First Eagle Investment Management is a leading shareholder in Willis Towers Watson Public Limited Company (NASDAQ:WTW), with 4.7 million shares worth more than $1.1 billion.
Regulatory filings show that Baupost Group owned more than 1.2 million shares of Willis Towers Watson Public Limited Company (NASDAQ:WTW) at the end of December 2021 worth $296 million, representing 2.93% of the portfolio.
In its Q3 2021 investor letter, Alluvial Capital Management, an asset management firm, highlighted a few stocks and Willis Towers Watson Public Limited Company (NASDAQ:WTW) was one of them. Here is what the fund said:
“The second position is much larger and was thrown into our hands by an unexpected turn of events. It is the stock of Willis Towers Watson Public Limited Company (NASDAQ:WTW). This is a British company with roots dating back to 1828. WLTW is the third-largest insurance broker in the world. This is a sector with which we are very familiar, as some time ago we held in our portfolio shares of its slightly larger competitor AON.
It was AON in fact that announced last spring it had agreed to merge with WLTW. In the merger, Willis Towers Watson Public Limited Company (NASDAQ:WTW) shareholders would have received AON shares. As is usually the case with such announcements, investors stepped in to conduct what is known as merger arbitrage. In this particular case, they bought Willis Towers Watson Public Limited Company (NASDAQ:WTW) shares and sold short AON shares in order to profit from the fact that the prices of the two stocks did not yet fully reflect the exchange ratio in the merger. Moreover, merger arbitrage commonly makes extensive use of leverage in order to increase profits.
This summer, however, AON and WLTW jointly announced that they were pulling out of the planned merger because they had not received approval from the US Department of Justice. The regulator had feared that in an already quite concentrated industry, a merger of the second- and third-largest players would restrict competition too much. The immediate reaction to this announcement was, of course, closing of positions from the merger arbitrage. This brought an immediate increase in the price of AON shares and decline in the price of WLTW shares. We saw this as an excellent buying opportunity in Willis Towers Watson Public Limited Company (NASDAQ:WLTW) stock. (In addition, WLTW had received a USD 1 billion breakup fee from AON.) Because we knew the industry and the two companies well from earlier years, we were able to react immediately, and a new, very attractive investment appeared in Vltava Fund’s portfolio rather unexpectedly and quickly.
Insurance brokerage is a very good business. Simply put, insurance brokers are intermediaries who sell, find, or negotiate insurance on behalf of a client for a fee. They do not bear the insurance risk themselves and thereby do not risk their own capital. They live from commissions and the fact that this is a large and recurring business. Just to give you a sense of this, I will note, for example, that of the 500 companies in the Fortune Global 500 list, more than 90% are clients of WLTW. The entire industry is very concentrated and has relatively high barriers to entry. Willis Towers Watson Public Limited Company (NASDAQ:WTW) is the third-largest global player, has very high free cash flow, low capital investment requirements, and a very valuable client base. The business as a whole also provides some long-term inflation protection, as the speed at which the volume of total premiums grows follows the speed at which the economy and asset prices grow in nominal terms. I have to say we are very happy that circumstances have passed this investment on to us.”
2. Garrett Motion Inc. (NASDAQ:GTX)
Number of Hedge Fund Holders: 19
PE Ratio: 4.12
Garrett Motion Inc. (NASDAQ:GTX) makes and sells auto parts and equipment. Securities filings reveal that Baupost Group owned over 25.4 million shares of the company at the end of December 2021 worth $213 million, representing 2.1% of the portfolio.
Major hedge funds hold large stakes in Garrett Motion Inc. (NASDAQ:GTX). Among the hedge funds being tracked by Insider Monkey, California-based investment firm Oaktree Capital Management is a leading shareholder in Garrett Motion Inc. (NASDAQ:GTX), with 68 million shares worth more than $576 million.
In its Q4 2021 investor letter, Alluvial Capital Management, an asset management firm, highlighted a few stocks and Garrett Motion Inc. (NASDAQ:GTX) was one of them. Here is what the fund said:
“Garrett Motion Inc. (NASDAQ:GTX) is also feeling the effects of the troubles with global supply chains. Difficulties in sourcing semiconductors have led many large automotive manufacturers to slow production, which in turn delays orders for Garrett Motion’s turbochargers. Still, the environment has not prevented Garrett Motion from making progress on improving its balance sheet and beginning to return capital. In November, the company announced a plan to repurchase $100 million in common and preferred stock. Then in December, Garrett Motion Inc. (NASDAQ:GTX) announced it would accelerate the planned redemption of its Series B preferred stock held by Honeywell. By this time next year, Garrett Motion will have meaningfully reduced its liabilities and bought in quite a bit of stock at a very attractive price. As supply chains normalize, the company’s earnings and cash flow will benefit, giving Garrett Motion Inc. (NASDAQ:GTX) the ability to return more capital to shareholders and invest in the transition to products for electric vehicles.”
1. Liberty Global plc (NASDAQ:LBTYA)
Number of Hedge Fund Holders: 27
PE Ratio: 1.02
Liberty Global plc (NASDAQ:LBTYA) provides communications services. It is a top communications stock in the hedge fund universe. At the end of the fourth quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth $609 million in Liberty Global plc (NASDAQ:LBTYA), compared to 34 in the preceding quarter worth $791 million.
The hedge fund of Seth Klarman entered the first quarter of 2022 with over 53 million shares of Liberty Global plc (NASDAQ:LBTYA) in its portfolio worth more than $1.5 billion, representing 14.97% of the total investments.
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Disclosure: None. 10 Value Stocks in Seth Klarman’s Latest Portfolio is originally published on Insider Monkey.
