Legendary Value Investor Seth Klarman’s Portfolio: Top 10 Stock Picks

In this article, we discuss the top 10 stock picks of legendary value investor Seth Klarman. If you want to skip our detailed analysis of these stocks, go directly to Legendary Value Investor Seth Klarman’s Portfolio: Top 5 Stock Picks

If you are a young investor living in the United States, chances are that you have never heard of Seth Klarman, the billionaire investor and chief of Baupost Group, the Boston-based hedge fund that had a portfolio value of more than $10 billion at the end of the third quarter of 2021. Klarman, who has a personal net worth of over $1.5 billion, is often referred to as the “the most influential and successful investor you have never heard of” by the media. In the past three years, his fund has generated annualized total returns of 6.6%.  

This might seem like underperformance to growth investors but a strategy of Baupost Group to invest in companies with robust free cash flows is likely to pay the firm solid dividends in the years to come, even though short-term growth might be compromised as a result. Latest 13F filings show that the portfolio value of the fund dropped by about $2 billion between June and September this year as it made new purchases in 3 stocks, bought additional stakes in 6, sold out of 5, and reduced holdings in 7 equities. 

Some of the top stocks in the portfolio of Baupost Group at the end of September included Alphabet Inc. (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), and Qorvo, Inc. (NASDAQ:QRVO), among others discussed in detail below.

Our Methodology

The companies listed below were taken from the investment portfolio of Baupost Group at the end of the third quarter of 2021. The analyst ratings and business fundamentals of the firms are also discussed to provide readers with some additional context for their investment choices. 

The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey. 

Legendary Value Investor Seth Klarman's Portfolio: Top 10 Stock Picks

Legendary Value Investor Seth Klarman’s Portfolio: Top Stock Picks

10. Nexstar Media Group, Inc. (NASDAQ:NXST)

Number of Hedge Fund Holders: 38     

Nexstar Media Group, Inc. (NASDAQ:NXST) is a broadcasting and digital media company. Latest data shows that Baupost Group owned 2 million shares of Nexstar Media Group, Inc. (NASDAQ:NXST) at the end of the third quarter of 2021 worth $310 million, representing 2.85% of the portfolio. 

Loop Capital analyst Alan Gould recently reiterated a Buy rating on Nexstar Media Group, Inc. (NASDAQ:NXST) stock and raised the price target to $200 from $175, appreciating the third quarter earnings results and improved guidance of the company. 

Among the hedge funds being tracked by Insider Monkey, Canada-based investment firm Cardinal Capital is a leading shareholder in Nexstar Media Group, Inc. (NASDAQ:NXST) with 1 million shares worth more than $166 million.  

Just like Alphabet Inc. (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), and Qorvo, Inc. (NASDAQ:QRVO), Nexstar Media Group, Inc. (NASDAQ:NXST) is one of the stocks attracting the attention of hedge funds. 

9. Veritiv Corporation (NYSE:VRTV)

Number of Hedge Fund Holders: 11  

Veritiv Corporation (NYSE:VRTV) provides packaging products and services. According to regulatory filings, Baupost Group owned 3.5 million shares in Veritiv Corporation (NYSE:VRTV) at the end of September 2021 worth $319 million, representing 2.93% of the portfolio. 

Veritiv Corporation (NYSE:VRTV) recently posted earnings for the third quarter, reporting earnings per share of $2.54, beating estimates by $0.68. The revenue over the period was $1.8 billion, up 13% year-on-year. 

At the end of the third quarter of 2021, 11 hedge funds in the database of Insider Monkey held stakes worth $354 million in Veritiv Corporation (NYSE:VRTV), down from 14 in the preceding quarter worth $254 million. 

8. eBay Inc. (NASDAQ:EBAY)

Number of Hedge Fund Holders: 49 

eBay Inc. (NASDAQ:EBAY) owns and runs an internet platform that connects buyers with sellers. The hedge fund of Seth Klarman owned 5.9 million shares of eBay Inc. (NASDAQ:EBAY) at the end of the third quarter of 2021 worth more than $416 million, representing 3.82% of the total portfolio. 

eBay Inc. (NASDAQ:EBAY) has recently invested heavily to improve the services related to authenticity on the platform. It announced in late November that it had purchased the authentication business of Sneaker Con Digital as the sneaker sales business grows. 

Among the hedge funds being tracked by Insider Monkey, United Kingdom-based investment firm Ako Capital is a leading shareholder in eBay Inc. (NASDAQ:EBAY) with 7.3 million shares worth more than $512 million. 

In its Q4 2020 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and eBay Inc. (NASDAQ:EBAY) was one of them. Here is what the fund said:

“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.

In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.

EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”

7. Micron Technology (NASDAQ:MU)

Number of Hedge Fund Holders: 63      

Micron Technology (NASDAQ:MU) markets memory and storage products. Baupost Group owned 7.1 million shares in Micron Technology (NASDAQ:MU) at the end of September 2021 worth $508 million, representing 4.67% of the portfolio of the fund. 

On December 6, investment advisory Cowen raised the price target on Micron Technology (NASDAQ:MU) stock to $99 from $80 and kept an Outperform rating, backing the company to outperform peers in the coming months. 

At the end of the third quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $3.8 billion in Micron Technology (NASDAQ:MU), down from 87 in the preceding quarter worth $6.3 billion.

Like Alphabet Inc. (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC) and Meta Platforms, Inc. (NASDAQ:FB), Micron Technology (NASDAQ:MU) remained a popular stock among elite hedge funds in 2021.

In its Q1 2021 investor letter, Bonsai Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:

“Micron is a manufacturer of memory semiconductor chips. Micron appreciated 17.3% during the quarter.

With the semiconductor cycle in full swing, sentiment continued to improve for major DRAM and NAND suppliers. Spot pricing for DRAM continues its upward march due to supply shocks across the industry and sustained demand levels that continue to outstrip supply.

As a result, Micron showed improving results for the fiscal first quarter, raised guidance intra-quarter for the fiscal second quarter, and offered strong guidance for the fiscal third quarter in both growth and margins.

While the cyclical nature of DRAM hasn’t changed, the cycles themselves continue to become more benign, leading to long-term economic improvement across these businesses. Micron is now continuously profitable, with industry players in a dramatically stronger position than even just five years ago.

The biggest negative surprise in the quarter came from Micron’s exit from its 3D XPoint hybrid memory business. The company also announced its decision to sell its accompanying Utah fab. Fortunately, this development does not alter the investment thesis much since 3D XPoint was an option ticket for future growth. While it’s unfortunate this product didn’t pan out, now is an excellent time to sell a fab, so perhaps it is a blessing in disguise?”

6. Meta Platforms, Inc. (NASDAQ:FB)

Number of Hedge Fund Holders: 248    

Meta Platforms, Inc. (NASDAQ:FB) is a diversified technology company. At the end of the third quarter of 2021, Baupost Group owned 1.5 million shares in Meta Platforms, Inc. (NASDAQ:FB) worth $525 million, representing 4.82% of the portfolio. 

As a new variant of COVID-19 spreads, Meta Platforms, Inc. (NASDAQ:FB) has announced that it will be allowing employees to continue work from home for at least five more months even though it plans to reopen the Meta offices by the end of January 2022. 

At the end of the third quarter of 2021, 248 hedge funds in the database of Insider Monkey held stakes worth $38 billion in Meta Platforms, Inc. (NASDAQ:FB), down from 266 in the preceding quarter worth $42 billion. 

In addition to Alphabet Inc. (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), and Qorvo, Inc. (NASDAQ:QRVO), Meta Platforms, Inc. (NASDAQ:FB) is one of the stocks on the radar of elite investors. 

In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Meta Platforms, Inc. (NASDAQ:FB) was one of them. Here is what the fund said:

“We continued to keep our learnings from 2020 in mind during the quarter as we sought to increase the up capture of the portfolio. We also made adjustments to the portfolio’s top 10 holdings to increase the participation of select stocks, including Facebook, while trimming our weighting to stable names, which now represent 47% of the portfolio. Our repositioning has been encouraging so far with the portfolio performing better on up days in the market while maintaining good down capture during more turbulent sessions.”

 

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Disclosure. None. Legendary Value Investor Seth Klarman’s Portfolio: Top 10 Stock Picks is originally published on Insider Monkey.