In this piece, we will take a look at the 12 best value stocks picked by Seth Klarman to buy heading into 2024. If you want to skip. our introduction to the billionaire hedge fund investor, value investing, and the current stock market investing climate, then take a look at 5 Best Value Stocks To Buy Heading Into 2024.
Value investing is one of the most popular investing approaches, particularly among professionals. At its heart, it is also the strategy that is most commonly understood by the general public since profiting from value stocks is done primarily through their share price appreciation. The logic behind value investing is that an undervalued company’s share price will appreciate in the future and enable the shareholder to make a profit.
The tricky part behind value investing is identifying the right companies. Considering the thousands of stocks that change hands every day, picking out the few correct value stocks is not an easy task. However, if the decision is correct, then in just a decade, an investor can significantly outpace the broader market and have a comfortable nest egg waiting. Investing in value stocks revolves around two financial concepts. These are the margin of safety and the fair value. The fair value of a company is an analyst’s determination of its future business and cash flow prospects, and if this value is lower than the market price, then there is an opportunity for profit.
The margin of safety is the difference between the fair value of a stock and its current share price. As the name suggests, it aims to protect an investor from rapid share price depreciation in the event a purchase decision is made. As a simple example, consider Stock A with a market price of $10. If its fair value is $15, then the buy point provides a 33% margin of safety. As a rule of thumb, the bigger the margin the better since the central assumption behind this approach is that the shares cannot sink too low when compared to their fair value.
Naturally, the potential to offer big gains has made a lot of hedge fund investors big fans of value investing. One such investor is Seth Klarman of the Buapost Group. Baupost is one of the biggest hedge funds in the world, with Insider Monkey’s research showing that as of June 2023, the fund had $25 billion in assets under management. When it comes to Baupost Group’s third quarter of 2023 investment portfolio, we took a look at its SEC filings for the time period to determine that the fund’s portfolio was worth $5.2 billion as of September 2023. Briefly analyzing the changes to this value, the latest Baupost investment portfolio marked a $400 million drop over Q2 2023 and a more sizeable $600 million drop over last year’s third quarter.
Mr. Klarman is a central figure when it comes to value investing. This strategy was popularized on Wall Street in the 1900s by Benjamin Graham’s & David Dodd’s seminal value investing bible, Security Analysis. The Baupost founder has had the honor of editing the latest edition of Security Analysis, and he explains in several chapters of the book that today’s investment climate is significantly different than what Graham and Dodd experienced in 1934 when they published the book’s first edition. According to him, balance sheet analysis which has long been a fundamental tenet of value investing is no longer as important today. This is because the modern day stock market is made of professional investors who are willing to spend millions of dollars in researching new technologies to make a profit. He also believes that the role of technology is crucial in determining the margin of safety, with the question that everyone needs to be asking for any company whether technology makes or breaks the business. However, Klarman does believe that there is still some ‘value’ in analyzing the balance sheet, especially when it comes to determining leverage.
Editing the Security Analysis is no small feather in one’s cap, and naturally, it merits a closer look at Seth Klarman’s latest investment portfolio to see which value stocks are on his radar. We did so today, and some top picks are Willis Towers Watson Public Limited Company (NASDAQ:WTW), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Fidelity National Information Services, Inc. (NYSE:FIS).
Our Methodology
To compile our list of the best value stocks to buy according to Seth Klarman, we first ranked all the stocks in his firm’s Q3 2023 portfolio by their forward price to earnings ratio. Then, the 12 stocks with the lowest P/E ratios were selected, and they were ranked based on Baupost Group’s investment stake.
12 Best Value Stocks To Buy Heading Into 2024 (Picked By Seth Klarman)
12. Altice USA, Inc. (NYSE:ATUS)
Baupost Group’s Q3 2023 Investment: $15.6 million
Latest Price to Forward Earnings Ratio: 5.34
Altice USA, Inc. (NYSE:ATUS) is a telecommunications company that provides internet, voice, and associated products and services. Its shares have been under a lot of trouble lately as they are down by 27% over the past six months. This naturally drops its price to earnings ratio.
By the end of this year’s second quarter, 26 out of the 910 hedge funds part of Insider Monkey’s database had bought Altice USA, Inc. (NYSE:ATUS)’s shares. Cliff Asness’ AQR Capital Management owned the biggest stake among these, which was worth $50.1 million and came via 17 million shares.
Along with The Liberty SiriusXM Group (NASDAQ:LSXMA),Willis Towers Watson Public Limited Company (NASDAQ:WTW), and Fidelity National Information Services, Inc. (NYSE:FIS), Altice USA, Inc. (NYSE:ATUS) is a top Seth Klarman value stock pick.
11. Herbalife Ltd. (NYSE:HLF)
Baupost Group’s Q3 2023 Investment: $23 million
Latest Price to Forward Earnings Ratio: 3.53
Herbalife Ltd. (NYSE:HLF) is a food company that provides sports, weight management, and other products. A tough U.S. consumer economy dragged on the firm’s third quarter financials as revenue dropped by 1.1% annually.
Insider Monkey dug through 910 hedge fund portfolios for their June quarter of 2023 portfolios and discovered that 28 held a stake in the company. Herbalife Ltd. (NYSE:HLF)’s largest hedge fund shareholder back then was William Duhamel’s Route One Investment Company courtesy of its $143 million investment.
10. Gray Television, Inc. (NYSE:GTN)
Baupost Group’s Q3 2023 Investment: $26 million
Latest Price to Forward Earnings Ratio: 1.83
Gray Television, Inc. (NYSE:GTN) is an American media company that owns, broadcasts, and operates television channels The firm expanded its studio portfolio in November 2023 when it opened a new 135 acre facility in Georgia.
As Q2 2023 ended, 28 out of the 910 hedge funds tracked by Insider Monkey were Gray Television, Inc. (NYSE:GTN)’s investors. Seth Klarman’s Baupost Group owned the biggest stake among these which was worth $29 million.
9. Garrett Motion Inc. (NASDAQ:GTX)
Baupost Group’s Q3 2023 Investment: $47 million
Latest Price to Forward Earnings Ratio: 6.4
Garrett Motion Inc. (NASDAQ:GTX) is a Swiss automotive products company that makes and sells products for conventional and electric vehicles. A slow European economy, particularly due to problems in Germany’s car industry made the firm’s third quarter results relatively muted as they saw sales drop 1% annually on a constant currency basis.
For their second quarter of 2023 shareholdings, 35 out of the 910 hedge funds tracked by Insider Monkey had invested in the company. Garrett Motion Inc. (NASDAQ:GTX)’s largest hedge fund shareholder during the time period was Howard Marks’ Oaktree Capital Management as it owned 44 million shares that were worth $333 million.
8. Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Baupost Group’s Q3 2023 Investment: $87 million
Latest Price to Forward Earnings Ratio: 6.23
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is an Ireland based biotechnology company that develops treatments for tumors, sleep disorders, and other ailments. It is the first stock on our list that is rated Strong Buy on average and analysts have set an average share price target of $198.
During 2023’s June quarter, 44 out of the 910 hedge funds part of Insider Monkey’s database had bought and invested in Jazz Pharmaceuticals plc (NASDAQ:JAZZ)’s shares. Robert Pohly’s Samlyn Capital owned the biggest stake among these, which was worth $166 million.
7. Dollar General Corporation (NYSE:DG)
Baupost Group’s Q3 2023 Investment: $98 million
Latest Price to Forward Earnings Ratio: 14.97
Dollar General Corporation (NYSE:DG) is one of the largest companies on our list with 170,000 employees. It is a consumer defensive stock that sells budget products. These days, Dollar General Corporation (NYSE:DG), along with other mega U.S. retailers is thought to be stuck with excess inventory close to the holiday season – mirroring a trend that also surfaced last year.
Insider Monkey scoured through 910 hedge fund portfolios for their shareholdings during this year’s June quarter and found that 57 had bought the firm’s shares. Dollar General Corporation (NYSE:DG)’s largest investor as of June 2023 was Brandon Haley’s Holocene Advisors as it owned $202 million worth of shares.
6. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Baupost Group’s Q3 2023 Investment: $120 million
Latest Price to Forward Earnings Ratio: 10.08
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is a mid sized software company that serves the needs of the financial and healthcare industries. The firm expanded its wealth management product offerings in November 2023 as it announced a new customer relationship management module for wealth managers.
43 out of the 910 hedge funds tracked by Insider Monkey were SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)’s investors as of Q2 2023 end. Richard S. Pzena’s Pzena Investment Management owned the largest stake among these, which was worth $850 million.
Willis Towers Watson Public Limited Company (NASDAQ:WTW), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Fidelity National Information Services, Inc. (NYSE:FIS) are some of Seth Klarman’s latest value stocks.
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Disclosure: None. 12 Best Value Stocks To Buy Heading Into 2024 (Picked By Seth Klarman) is originally published on Insider Monkey.