5 High Growth Value Stocks to Buy According to Seth Klarman

3. Alphabet Inc. (NASDAQ:GOOG)

Seth Klarman’s Stake Value: $498 million

Seth Klarman’s hedge fund cut its stake in Alphabet Inc. (NASDAQ:GOOG) by about 29% in the second quarter but the firm still owns a $498 million stake in the company. Despite being one of the top mega-cap tech stocks, Alphabet Inc. (NASDAQ:GOOG) has huge growth opportunities due to its AI investments, Cloud and search dominance. Baird recently said that Alphabet’s counteroffensive against Microsoft in the AI domain is “taking shape.” Baird analyst Colin Sebastian has an Outperform rating and a $140 target on Alphabet Inc. (NASDAQ:GOOG).

Giverny Capital Asset Management made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its second quarter 2023 investor letter:

“I have believed for a while that we’re better served with a lower weight to the tech giants – we own Alphabet Inc. (NASDAQ:GOOG) (8.1% of our model portfolio at the end of June) and Meta (5.2%) for a 13.3% exposure, or about half the Index’s weight in the giants. And while Alphabet’s 36% return for the first half and Meta’s 138% return were gratefully received, I’m pleased to report that if we strip out that contribution to our overall return, the other 23 stocks we own, constituting 85% of our portfolio (with cash making up the balance), were up 10.2% on a weighted basis.

GCAM owns two of the seven tech mega caps in Alphabet and Meta, and they enjoyed similar rises. As mentioned, Alphabet A&C shares rose 36% while Meta rose 138%. Together, they added 2.38 percentage points to the overall Index return, meaning these seven tech giants cumulatively generated 12.4 percentage points of return, or roughly three-quarters of the Index’s return.

Alphabet and Meta combined sport a $2.25 trillion market cap and between them should generate roughly $120 billion of pretax profit this year. That’s a multiple of 19 times pretax profit, a substantial discount to Microsoft and Apple, and an even larger discount to Amazon, Nvidia and Tesla.”