3 Defensive Stocks To Buy in 2022 According to Seth Klarman

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In this article, we discuss the 3 defensive stocks to buy in 2022 according to Seth Klarman. If you want to read our detailed analysis of Seth Klarman’s investment strategy and views on the current market situation, go directly to 6 Defensive Stocks To Buy in 2022 According to Seth Klarman.

3. Post Holdings, Inc. (NYSE:POST)

Percentage of Baupost Group’s 13F portfolio: 0.28%

Value of Baupost Group’s Stake: $26.2 million

Number of Hedge Fund Holders: 36

Post Holdings, Inc. (NYSE:POST) is a consumer packaged goods company which sells refrigerated, center-of-the-store, food ingredients, and nutrition food products through a range of brands. Despite the recent market sell-off, POST ranks among a number of food retail brands showing strong performance as investors rotate towards defensive stocks. As of June 17, Post Holdings, Inc. (NYSE:POST) has gained 9.53% in the last 6 months, while the S&P500 has slumped nearly 21% over the same period.

On May 9, Piper Sandler analyst Michael Lavery raised the firm’s price target on Post Holdings, Inc. (NYSE:POST) to $96 from $84 and maintained an ‘Overweight’ rating on the company shares. He retained a bullish view on the shares and updated his model to reflect a faster recovery in Foodservice margins, driving his FY2022 EBITDA estimate to the high-end guidance. In June, the company announced that it would invest $110 million to expand its cereal production capacity at its Nevada facility, in order to meet consumer demand, solve capacity constraints, and boost local production for West Coast customers.

Post Holdings, Inc. (NYSE:POST) announced its first quarter earnings on May 5, where EPS was reported at $0.24, outperforming estimates by $0.04. The company raked in $1.41 billion in revenue for the quarter, exceeding Street estimates by $51.4 million. 
36 hedge funds were long Post Holdings, Inc. (NYSE:POST) at the end of March, as compared to 35 hedge funds in the preceding quarter. The aggregate value of Q1 hedge fund holdings stood at $985.8 million. The company’s largest shareholder in the first quarter was Route One Investment Company, with a stake worth nearly $485 million.

Heartland Advisors, an investment firm, talked about the history and performance of Post Holdings, Inc. (NYSE:POST) in its Q1 2021 investor letter. Here’s what it said:

“The run up in equity prices over the past several months has narrowed the pool of attractively valued businesses. Economically sensitive areas of the market, in particular, have seen valuations stretched—but the impact of investor exuberance is evident in share prices of companies throughout the broader market. In response, we continue to focus on finding and owning companies that are poised to succeed against a variety of backdrops or those that are priced at significant discounts to peers regardless of the sector or industry. Recent addition Post Holdings, Inc. (POST) is an example of the type of business we’ve found attractive.

Post manufactures and markets food products through five business lines including a breakfast cereals unit, a food service division, refrigerated retail products, and active nutrition. Shares of the company came under pressure due to the severe impact the COVID-19 economic shutdown had on its food service segment.

Additionally, investors were wary of the company’s use of debt given the uncertainty surrounding how long the economic pullback would last. The bear case against the stock, in our view, is overblown.

In recent years, Post has transformed itself into a higher-growth packaged food enterprise with a diversified portfolio that, taken as a whole, possesses superior growth and free cash flow characteristics vs. its peers. Despite this, shares sell at a meaningful discount to the peer group based on enterprise value/earnings before interest taxes depreciation and amortization, as well as our estimates of the company’s intrinsic value. As the economy returns to normal, Post’s food service line should rebound, and we believe investors will gain a greater appreciation of the company and its stock.”

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