In this article, we discuss the 10 stocks that legendary value investor Seth Klarman is selling in 2023. If you want to see more stocks in this selection, check out Legendary Value Investor Seth Klarman is Selling These 5 Stocks in 2023.
In early 2020, the pandemic caused a brief disruption in the financial markets, but since then, the markets have experienced significant growth. Forbes reported that Seth Klarman, in his year-end letter for Baupost in January 2022, discussed his strategy to capitalize on various trends that have fueled market growth in recent years. These trends include political uncertainty, government interventions, climate change, and technological disruptions. While there has been a debate about the viability of value investing, value stocks showed signs of a comeback in 2021, although growth stocks remained popular. Klarman emphasized the importance of seeking opportunities beyond the mainstream stocks and focusing on valuation and business fundamentals to achieve long-term capital growth over several years. He is one of the most well-known value investors on Wall Street.
On February 8, 2023, Financial Times cited Seth Klarman, who communicated to the investors of his hedge fund the opinion that the actions taken by the Federal Reserve in response to the 2008 financial crisis, along with the subsequent prolonged period of low interest rates, had led to “erect a financial fantasyland”. In a letter addressed to clients at the end of the year, Seth Klarman, who serves as the head of Baupost Group, expressed his views:
“A consequence-free era of virtually unlimited low-cost capital had come to an end. A boom based on easy-money policies will inevitably contain the seeds of its own destruction.”
Klarman compared the significant increase in interest rates experienced last year to kryptonite, stating that it played a crucial role in deflating what he referred to as the “everything bubble.” This bubble included investments in unprofitable companies that were considered growth companies, which had seen substantial gains during the pandemic-induced boom but lacked intrinsic value. Financial Times reported Klarman’s words from his year-end letter to investors:
“These included scores of profitless early-stage companies that could have come public only in a bubble, a staggering volume of bonds that sported cartoonishly low yields, most of the absurd ‘meme stocks’, and stocks such as Tesla — intensely hyped, egregiously overvalued, and priced only for the smoothest of rides — whose shares dropped by nearly two-thirds.”
Baupost Group invests in different types of securities, such as value stocks, distressed debt, liquidations, foreign equities, and bonds. The equity portfolio, valued at $5.84 billion as of March 2023, consists of 30 stocks and the primary sectors with the highest allocation in the portfolio are communication services, technology, industrials, and consumer cyclical. During the first quarter of 2023, Klarman initiated new positions in 3 stocks, increased his stake in 9 existing stocks, completely sold off 6 securities, and reduced holdings in 11 stocks. Some of the most prominent stocks he discarded include Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN), and Micron Technology, Inc. (NASDAQ:MU).
For this list, we selected the stocks which Seth Klarman’s hedge fund cut its stake in substantially or completely sold during the first quarter. The stocks are ranked in ascending order of the percentage of stake sold.
Legendary Value Investor Seth Klarman is Selling These Stocks in 2023
10. Trilogy Metals Inc. (NYSE:TMQ)
Percentage of Stake Sold: 47%
Number of Hedge Fund Holders: 7
Trilogy Metals Inc. (NYSE:TMQ) is a base metals exploration company that explores for and develops mineral properties in the United States. The company is primarily responsible for providing sulfide, copper, and cobalt. Trilogy Metals Inc. (NYSE:TMQ)’s Q1 GAAP EPS of -$0.03 missed Wall Street estimates by $0.01. Securities filings for the first quarter of 2023 reveal that Seth Klarman sold 47% of his Trilogy Metals Inc. (NYSE:TMQ) stake, holding 4.27 million shares worth $2.27 million.
On April 19, Trilogy Metals Inc. (NYSE:TMQ) decided to engage in a non-brokered private placement, whereby approximately 5.85 million shares will be offered at a price of $0.55 per share. This move aims to generate around $3.22 million in total funds raised. Both Electrum Strategic Opportunities Fund L.P. and a wholly owned subsidiary of South32 have expressed their intention to subscribe to $1.2 million worth of shares each as part of this private placement. After the private placement, Electrum’s ownership will increase from 20.4% to 21.0%, while South32’s ownership will increase from 11.0% to 12.0%.
According to Insider Monkey’s fourth quarter database, 7 hedge funds held stakes worth $13.8 million in Trilogy Metals Inc. (NYSE:TMQ), compared to 6 funds in the prior quarter worth $16.3 million.
Similar to Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN), and Micron Technology, Inc. (NASDAQ:MU), Seth Klarman divested his investment in Trilogy Metals Inc. (NYSE:TMQ) in 2023.
9. DigitalBridge Group, Inc. (NYSE:DBRG)
Percentage of Stake Sold: 62%
Number of Hedge Fund Holders: 23
DigitalBridge Group, Inc. (NYSE:DBRG) that focuses on infrastructure investments. The company’s area of expertise lies in investing in and managing different businesses within the digital ecosystem. This includes ventures related to cell towers, data centers, fiber optic networks, small cells, edge infrastructure, digital infrastructure, and real estate. In Q1 2023, Seth Klarman sold 62% of his shares in DigitalBridge Group, Inc. (NYSE:DBRG), holding 1.23 million shares worth nearly $15 million at the end of March.
On May 3, DigitalBridge Group, Inc. (NYSE:DBRG) reported Q1 non-GAAP earnings per share of -$0.02, beating Wall Street estimates by $0.02. The revenue of $250.16 million climbed 7.4% year-over-year, falling short of market consensus by $47.28 million.
According to Insider Monkey’s fourth quarter database, 23 hedge funds were long DigitalBridge Group, Inc. (NYSE:DBRG), compared to 22 funds in the last quarter. Charles Akre’s Akre Capital Management is the largest stakeholder of the company.
Ave Maria Focused Fund made the following comment about DigitalBridge Group, Inc. (NYSE:DBRG) in its Q4 2022 investor letter:
“DigitalBridge Group, Inc. (NYSE:DBRG): DigitalBridge is transforming its business from a REIT that invests from its own balance sheet into a manager of alternative asset funds. Most of the heavy lifting with the transformation is complete. However, due to its on-balance sheet investments, DigitalBridge’s GAAP financials do not look like the financials of its asset manager peer group. Over the next few quarters, as DigitalBridge continues to sell its balance sheet investments, the GAAP financials will be simplified.”
8. Fiserv, Inc. (NASDAQ:FISV)
Percentage of Stake Sold: 74%
Number of Hedge Fund Holders: 65
Fiserv, Inc. (NASDAQ:FISV) offers global payment and financial services technology solutions. The company is divided into three operational segments – Acceptance, Fintech, and Payments. In the first quarter of 2023, legendary value investor Seth Klarman dumped 74% of his stake in Fiserv, Inc. (NASDAQ:FISV). As of the end of March, Klarman owned 533,382 shares of the company worth $60.28 million.
On May 3, Tigress Financial increased its price target for Fiserv, Inc. (NASDAQ:FISV) to $160 from $154, while maintaining a Buy rating on the company’s shares. The firm believes that the continued expansion of electronic payments and the growing acceptance of merchants will contribute to revenue growth and drive further increases in the stock price. Tigress acknowledged Fiserv, Inc. (NASDAQ:FISV)’s strong organic growth and highlighted the positive momentum of its product, Clover. With a diverse and industry-leading portfolio, Fiserv is well-positioned to benefit from the ongoing shift towards electronic payments, creating long-term value for its shareholders. Additionally, Tigress mentioned that Fiserv, Inc. (NASDAQ:FISV) recently reported impressive Q1 results, with Clover remaining a standout performer.
According to Insider Monkey’s fourth quarter database, 65 hedge funds were bullish on Fiserv, Inc. (NASDAQ:FISV), compared to 59 funds in the prior quarter. Harris Associates is the biggest position holder in the company.
Renaissance Large Cap Growth Strategy made the following comment about Fiserv, Inc. (NASDAQ:FISV) in its Q4 2022 investor letter:
“We made one change to the portfolio in the fourth quarter, adding a new position in the Information Technology sector with Fiserv, Inc. (NASDAQ:FISV), a leading financial services technology company that facilitates the movement of money, helping to run the financial operations of banks and merchants. The company enjoys a leading market position in a rational oligopoly in which the top three companies control 70% of the entire market. We also like the company’s strategy of being a “one-stop-shop” for banks and merchants, resulting in a large financial platform that has the operating scale to outcompete smaller rivals and a recurring revenue model that is highly attractive in uncertain macroeconomic environments.”
7. Lithia Motors, Inc. (NYSE:LAD)
Percentage of Stake Sold: 74%
Number of Hedge Fund Holders: 40
Lithia Motors, Inc. (NYSE:LAD) functions as a retailer in the automotive industry. The company provides a range of services including the sale of new and used vehicles, vehicle financing options, warranties, insurance contracts, vehicle protection services against theft, as well as automotive repair and maintenance services. In Q1 2023, Seth Klarman disposed of 74% of his stake in Lithia Motors, Inc. (NYSE:LAD). As of March end, Klarman’s Baupost Group held 65,043 shares of the company worth $14.8 million.
On April 19, Lithia Motors, Inc. (NYSE:LAD) declared a $0.50 per share quarterly dividend, a 19% increase from its prior dividend of $0.42. The dividend is payable on May 26, to shareholders of record on May 12.
Guggenheim analyst Jonathan Elias on April 20 reduced the price target for Lithia Motors, Inc. (NYSE:LAD) to $320 from $332 while maintaining a Buy rating on the company’s shares. This adjustment comes in response to the company’s Q1 earnings report, which fell short of expectations, primarily due to weaker results in the Dealer Financial Services segment. However, Guggenheim clarified that this was mainly influenced by the reclassification of net charge-offs. The firm noted that its earnings per share (EPS) estimate for 2023 has been revised downward, but it maintains a positive outlook, believing that 2023 represents the lowest point for earnings.
According to Insider Monkey’s fourth quarter database, 40 hedge funds were bullish on Lithia Motors, Inc. (NYSE:LAD), compared to 45 funds in the earlier quarter. David Abrams’ Abrams Capital Management is the biggest stakeholder of the company.
Here is what Right Tail Capital has to say about Lithia Motors, Inc. (NYSE:LAD) in its Q1 2023 investor letter:
“The original research premise fit right into Right Tail’s wheelhouse: a set of good businesses trading at attractive long-term valuations. Valuations look inexpensive at mid to high single digit multiples of earnings. Historically, these businesses have traded at 10-15x P/E multiples despite having more leverage and holding more inventory than they do today. In some ways, the historical multiples feel appropriate given their delicate relationships with manufacturers and cyclicality; on the other hand, these businesses have produced solid mid-teens returns with attractive reinvestment opportunities suggesting they are better than average companies. Adding another wrinkle to the puzzle, these businesses have over-earned the last few years due to Covid (car shortages, consumers flush with cash, etc.).
As I began the work, the compelling return potential warranted additional research. Lithia Motors (LAD), for example, has laid out a 2025 earnings per share target of $55-60. If the company reaches $55 in earnings and trades at a 12x P/E, we’d have a stock price of $660 – this would be a triple from today’s prices and produce a ~45% IRR over 3 years. The businesses are also producing lots of cash currently (LAD has earned ~$40 per share the last few years) creating additional capital allocation optionality.”
6. Redfin Corporation (NASDAQ:RDFN)
Percentage of Stake Sold: 100%
Number of Hedge Fund Holders: 18
Redfin Corporation (NASDAQ:RDFN) is a residential real estate brokerage firm that operates in the United States and Canada. The company primarily functions as an online real estate marketplace and offers a range of real estate services, including assisting individuals in buying or selling homes, title and settlement services, and originating and selling mortgages. In the December quarter of last year, Seth Klarman owned 8.48 million shares of Redfin Corporation (NASDAQ:RDFN) worth approximately $5 million. He sold his entire stake in the company during Q1 2023.
On May 4, Redfin Corporation (NASDAQ:RDFN) reported a Q1 GAAP EPS of -$0.55 and a revenue of $325.7 million, topping Wall Street estimates by $0.46 and $11.63 million, respectively. Revenue for the period declined 45.5% on a year-over-year basis. In the second quarter, the total revenue for Redfin Corporation (NASDAQ:RDFN) is anticipated to range between $268 million and $281 million. This projection falls below the consensus estimate of $295.63 million, indicating a year-over-year decline between 20% and 24% when compared to the same quarter in 2022. However, the company also anticipates a net loss in the range of $44 million to $35 million, which is an improvement compared to the net loss of $78 million incurred in the second quarter of 2022.
According to Insider Monkey’s fourth quarter database, 18 hedge funds were bullish on Redfin Corporation (NASDAQ:RDFN), compared to 17 funds in the prior quarter. Brian Bares’ Bares Capital Management is the biggest stakeholder of the company.
Seth Klarman dumped his stake in Redfin Corporation (NASDAQ:RDFN) entirely during the first quarter of 2023, in line with actions taken regarding Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN), and Micron Technology, Inc. (NASDAQ:MU).
Saga Partners made the following comment about Redfin Corporation (NASDAQ:RDFN) in its Q4 2022 investor letter:
“Redfin Corporation (NASDAQ:RDFN)’s results have been disappointing in 2022. Aside from the COVID lockdown quarter of Q2’20, Redfin never experienced a year-over-year decline in transaction volume. In fact, the company has never grown transaction volume less than double digits.
The housing market has been difficult to navigate since COVID. Recent volatility in existing home sales is not what one would expect from normal cyclicality but has been due to the imbalances in supply/demand since COVID, combined with higher interest rates. Housing is unique in that most home buyers are also home sellers. Since rates moved up significantly in 2022, homeowners that refinanced at lower rates are less willing to buy a new home, at least at current prices, which has led to standstill in existing home transactions…” (Click here to read the full text)
Click to continue reading and see Legendary Value Investor Seth Klarman is Selling These 5 Stocks in 2023.
- 11 Stocks with Heavy Insider Buying
- 15 Stocks Warren Buffett Sold
- Billionaire John Paulson’s 2023 Portfolio: Top 15 Stock Picks
Disclosure: None. Legendary Value Investor Seth Klarman is Selling These 10 Stocks in 2023 is originally published on Insider Monkey.