In this article, we will discuss Forget AI: Legendary Value Investor Seth Klarman Is Buying These 10 Value Stocks in 2026.
Seth Klarman is one of the legendary value investors of his generation. He founded The Baupost Group in 1982, and the firm delivered annualized returns of about 20% over its first 26 years, according to a Bloomberg report from January 2025.
Baupost has long warned investors that its value-oriented approach may lag during extended bull markets. That is what happened over the past few years, as historically low interest rates, soaring asset prices, and the AI-driven rally in large technology stocks weighed on relative performance. Bloomberg reported that Baupost generated annualized returns of about 4% from 2014 through 2024, leading some investors to lose patience. The firm saw roughly $7 billion in client withdrawals between 2021 and 2025.
Klarman remains optimistic. Baupost has been narrowing its focus to areas where it has historically performed best — distressed debt, special situations, and event-driven investments — while encouraging a more flexible and collaborative investment process.
In a July 2023 interview with Goldman Sachs, Klarman said his approach has evolved, but the core principle remains intact. Even in an expensive market, bargains can still exist, he said, but investors need to verify that assets are truly mispriced. He has no qualms about sitting on the sidelines when opportunities are limited. He said being a value investor requires “different wiring.”
“The only way to invest well long term is to be differentiated from the crowd,” Klarman told Goldman Sachs. “And the only way to kind of die as a business is to be too differentiated from the crowd. And at the same time, the only way to outperform is to be different.”
Klarman’s Q1 portfolio shows he is indeed differentiated from the crowd. While Baupost’s Q1 portfolio includes some exposure to technology, a significant portion of its top holdings remains concentrated in old-economy, value-oriented sectors. For this article, we scanned Baupost’s Q1 portfolio and picked top 10 holdings with relatively low P/E ratios and exposure to old, evergreen industries. Why are we interested in 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. Insider Monkey’s quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 599.2% since May 2014, beating its benchmark by 372 percentage points (see more details here).
10. DNOW Inc. (NYSE:DNOW)
Baupost’s Stake: $43,174,000
DNOW Inc. (NYSE:DNOW) is a distributor of energy and industrial products, spun off from National Oilwell Varco in 2014. The stock is down about 9% over the past year, trading at $13.30 — well below its February 2026 high of $17.26.
Its merger with MRC Global has transformed the company into a $2.22 billion business with a diversified revenue mix across upstream energy (41%), midstream (21%), gas utilities (21%), and downstream and industrial (17%). The stock has taken a beating since the deal closed, weighed down by merger-related accounting charges and a messy Oracle ERP system conversion at legacy MRC Global. Bulls believe the selloff is an overreaction that creates a compelling entry point for long-term investors.
Key growth catalysts are building. Gas utilities are expanding capacity to meet rising energy demand, and the spike in oil prices following the Iran conflict could finally break three years of stagnant upstream spending.
DNOW Inc. is quietly becoming a data center play. The company supplies piping, valves, fittings, and fluid control infrastructure for data center cooling systems and power management. It grew its data center customer base from zero in 2024 to 11 customers by year-end 2025, and sees the segment as a meaningful growth avenue going forward.
The stock trades well below industrial distributor peers, where valuation multiples run 50–100% higher than current levels.
Rewey Asset Management stated the following regarding DNOW Inc. (NYSE:DNOW) in its Q1 2026 investor letter:
“We initiated a position in DNOW Inc. (NYSE:DNOW), a distributor of energy and industrial products. Spun off from National Oilwell Varco in 2014, DNOW has grown revenue and improved profitability over the past five years despite a weak upstream E&P environment. In November 2025, DNOW merged with its largest competitor, MRC Global, forming a $2.22 billion company with a diversified revenue mix: approximately 41% upstream energy, 21% midstream, 21% gas utilities, and 17% downstream and industrial.
We bought shares following the sharp sell-off after DNOW Inc. reported 4Q25 earnings. In our view, the release led to investor neglect due to numerous merger-related accounting charges and news that legacy MRC Global was experiencing significant issues with its Oracle ERP conversion. We believe this disruption has obscured the merger’s substantial revenue and cost synergies, as well as a potential cyclical recovery in upstream and chemical spending…” (Click here to read the full text)
9. Norwegian Cruise Line Holdings (NYSE:NCLH)
Baupost’s Stake: $67,881,000
Norwegian Cruise Line Holdings (NYSE:NCLH) trades at roughly 9x EV/EBITDA and less than 10x forward earnings. This shows a discount to peers like Royal Caribbean and Carnival, which trade at higher multiples.
In Q1 2026, NCLH returned to profitability with revenue of $2.33 billion and net income of $104.67 million versus a loss a year earlier. Occupancy is expected to exceed 104% in 2026, and Norwegian Cruise Line Holdings’ (NYSE:NCLH) luxury brands continue to see healthy demand. Broader cruise bookings are holding up well across the industry.
The debt load has been the biggest concern hanging over the stock. But most of that debt does not mature until 2030, giving management several years to improve cash flow and reduce leverage. Capital spending is also expected to decline significantly after 2027, potentially freeing up nearly $1 billion annually for debt reduction.
Activist investor Elliott Management has pushed for operational improvements, board changes, and a more disciplined financial strategy. And new CEO John Chidsey has launched a turnaround plan including $125 million in cost savings.
Ariel Small Cap Value Fund stated the following regarding Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) in its Q1 2026 investor letter:
Alternatively, shares of Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) declined during the quarter after earnings guidance came in below investor expectations. The results reflect a transitional period under new leadership as the company works through residual operational inefficiencies and a higher cost environment, including elevated fuel expenses. Booking trends…(read the full letter here).”
8. Molina Healthcare (NYSE:MOH)
Baupost’s Stake: $84,460,000
Molina Healthcare (NYSE:MOH) is a managed care company focused on government-sponsored health programs — Medicaid, Medicare, and the ACA Marketplace. Its moat lies in long-standing state government contracts, deep expertise serving low-income populations, and an infrastructure built specifically around Medicaid managed care.
The stock has been hammered amid Medicaid rate adjustments and elevated medical costs. But bulls argue this is a cyclical trough, not a structural problem. Medicaid managed care has a well-documented cycle — costs overshoot state reimbursement rates, companies take losses, states adjust rates higher, and margins recover. Molina Healthcare’s (NYSE:MOH) CEO has explicitly called 2026 the margin trough.
Q1 2026 provided the first hard evidence of recovery. Adjusted EPS came in at $2.35, crushing the $1.29 consensus, sending the stock up 15% in a day. Bank of America issued a rare double upgrade to Buy, lifting its price target to $250 and projecting EPS could reach $30 by 2029 — nearly twice the Street consensus of $17.32.
7. Genuine Parts Co (NYSE:GPC)
Baupost’s Stake: $157,604,000
Genuine Parts Co (NYSE:GPC) is down about 20% this year, and value investors believe now is the time to buy. The stock trades at a forward P/E of 12.92x, below its historical average of 17.27x.
Genuine Parts Co (NYSE:GPC) is a global distributor of automotive and industrial replacement parts, operating across 17 countries under the NAPA Auto Parts and Motion Industries brands. Earnings are projected to grow 5% in 2026, accelerating to 8% in 2027 and 12% in 2028.
The defining event on the horizon is a planned company split into two independent publicly traded businesses — Global Automotive and Global Industrial — targeted for Q1 2027. Activist investor Elliott pushed for the separation, arguing each standalone business will attract its own investor base and trade at a higher multiple. Bulls see it as a re-rating catalyst that unlocks hidden value. Bears point to real near-term risks — separation costs are already emerging, future dividend policy is unclear, and dis-synergies could add $100-200 million in incremental costs.
Genuine Parts Co (NYSE:GPC) has a dividend yield of over 4.3% with about 70 consecutive years of dividend increases.
6. Eagle Materials (NYSE:EXP)
Baupost’s Stake: $169,134,000
Eagle Materials (NYSE:EXP) produces cement, gypsum wallboard, aggregates, and recycled paperboard across 70+ facilities in 21 states. Its moat lies in the sheer difficulty of replicating its network — you cannot easily build new cement plants or quarries, and the company’s scale and geographic reach give it real pricing power in local markets.
The business has been under pressure. The Gypsum Wallboard segment — heavily tied to residential construction — saw revenue plunge 16% as housing completions fell and building permits dropped 5.8% year-on-year. A housing recovery is not expected until 2027. However, the Cement segment is holding up well, with volumes growing 9.3% and operating earnings climbing from $86.8 million to $91.3 million. Importantly, management has signaled price increases are coming — which, if volumes hold, should be a meaningful earnings tailwind.
Bulls believe the stock is undervalued. Based on projected full-year figures of $424.5 million in net profits and EBITDA of $782.5 million, Eagle Materials (NYSE:EXP) trades at a discount to every comparable peer. A re-rating to peer averages would imply upside of 79% to 101.5%. Even using the cheapest peer as a benchmark, upside ranges from 2.9% to 22.1%.
J.P. Morgan recently upgraded the stock to Neutral from Underweight with a $225 price target, citing improving cement demand, wallboard weakness that likely troughed in Q4 2025, and an optimistic outlook for the back half of 2026. JPM specifically highlighted healthy infrastructure spending, robust data center construction, and rising demand for warehouses and energy projects as demand drivers.
While we acknowledge the potential of EXP to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than EXP and that has 100x upside potential, check out our report about the cheapest AI stock.
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