Below we delve into the Seth Klarman Stock Portfolio: Top 5 Stock Picks. For our methodology and a more comprehensive list please see Seth Klarman Stock Portfolio: Top 10 Stock Picks.
5. Veritiv Corporation (NYSE:VRTV)
Value of Baupost Group‘s 13F Position: $336 Million
Number of Hedge Fund Shareholders: 19
Seth Klarman’s Baupost Group trimmed the size of its Veritiv Corporation (NYSE:VRTV) holding by 4% during Q3, ending the quarter with 3.44 million shares. There was a jump in hedge fund ownership of Veritiv during the fourth quarter of 2021 in the midst of VRTV shares’ impressive run from less than $12 in the middle of 2020 to more than $120.
The business products and solutions company continues to benefit from the ongoing rise of e-commerce, which is driving demand for its packaging solutions. Veritiv Corporation (NYSE:VRTV) grew organic sales by 15% during the third quarter, while its adjusted EBITDA grew by more than 50%. The company’s adjusted EBITDA margins also reached record highs during the quarter courtesy of aggressive pricing actions.
The strong performance allowed Veritiv to initiate a quarterly dividend of $0.63 per share, which initially equated to a healthy 2.32% yield. That number has since dipped to 1.83% as the stock has bounded upwards by 46% in the fourth quarter. Bank of America analyst George Staphos lowered his price target on Veritiv Corporation (NYSE:VRTV) to $126 from $155 in October, but kept a ‘Buy’ rating on the stock. He believes the packaging sector is cheap right now and a good defensive play, but warns that recession risks loom large over the industry.
4. Viasat, Inc. (NASDAQ:VSAT)
Value of Baupost Group‘s 13F Position: $492 Million
Number of Hedge Fund Shareholders: 14
Klarman’s Viasat, Inc. (NASDAQ:VSAT) holding was left unchanged during Q3 at 16.3 million shares, a position which has been maintained for two years running. The value of the holding is down slightly during that time as VSAT shares have underperformed the market and remain 60% off their all-time highs reached in May 2019. Hedge fund ownership of VSAT is down by 59% since that Q2 of 2019 and hit a 6-year low in Q3 of this year.
Viasat, Inc. (NASDAQ:VSAT) aims to streamline its business and increase the amount of recurring revenue it generates, which prompted it to sell the majority of its military business to L3Harris Technologies, Inc. (NASDAQ:LHX) for $1.96 billion. The deal will also help Viasat pay for its $6 billion acquisition of Inmarsat Group Holdings without having to take on a mountain of debt. Following the completion of those deals, about 77% of Viasat’s total sales will be of the recurring variety.
Cove Street Capital was bullish on the value of Viasat, Inc. (NASDAQ:VSAT)’s defense business, as it shared in its Q2 2022 Investor Letter:
“Viasat, Inc. (NASDAQ:VSAT) seems to be either our biggest winner or loser every quarter – annoyingly. The much-delayed launch of the first of three next generational satellites will be at the end of this summer and that event should end this yo-yo in the stock and put us on a more sustainable path in the eyes of the world. Oh, and we think the defense business alone is worth nearly 2x the current price of the stock.”
3. The Liberty SiriusXM Group (NASDAQ:LSXMA)
Value of Baupost Group‘s 13F Position: $520 Million (LSXMK), $292 Million (LSXMA)
Number of Hedge Fund Shareholders: 52 (LSXMK), 43 (LSXMA)
Seth Klarman raised his stake in both classes of The Liberty SiriusXM Group (NASDAQ:LSXMA)’s shares by 4% during Q3, ending the quarter with a combined 21.4 million shares. Warren Buffett’s Berkshire Hathaway also owns large stakes in both LSXMK and LSXMA, with a combined 63.4 million shares. Both classes of shares have lost 17% in 2022.
The Liberty SiriusXM Group (NASDAQ:LSXMA) announced in November that will attempt to split off Liberty Braves into a newly formed company called Atlanta Braves Holdings. The new company would include all of the assets and liabilities of Braves Holdings LLC, which includes the Atlanta Braves MLB team, certain assets and liabilities related to its home stadium Truist Park, as well as a mixued-use development project called The Battery Atlanta.
The move is an attempt to improve Liberty Media’s steep net asset value (NAV) discount by improving the visibility of some of its assets. Deutsche Bank analyst Brian Kraft estimated back in August that The Liberty SiriusXM Group (NASDAQ:LSXMA) was trading at a 36% NAV discount and was bullish on management’s plans to take action to improve that, which eventually culminated in the above plans. Kraft had a ‘Buy’ rating and $74 price target on LSXMA shares at that time, suggesting the stock has 76% upside.
2. Qorvo, Inc. (NASDAQ:QRVO)
Value of Baupost Group‘s 13F Position: $538 Million
Number of Hedge Fund Shareholders: 36
Qorvo, Inc. (NASDAQ:QRVO) remains Seth Klarman’s second-largest holding for the fourth straight quarter after he trimmed his position by 3% to 6.78 million shares during Q3. Hedge fund ownership of Qorvo is down by 36% over the last two years, the same amount QRVO shares have lost over the last 52 weeks. Steve Cohen’s Point72 Asset Management sold off its stake in Qorvo during Q3.
Qorvo, Inc. (NASDAQ:QRVO) shares have been heavily impacted due to the slump in global smartphone sales, namely the sales of Android devices. The chipmaker’s Q2 of fiscal 2023 cellular revenue fell by 17% year-over-year to $787 million due to lower Android shipments. While Qorvo’s cellular revenue grew by 15% year-over-year, there are mounting fears on that front as well, as it’s been reported that Apple Inc. (NASDAQ:AAPL), the company’s largest customer, may cut back on iPhone production early next year in light of a potential recession and surging inflation dampening demand for its products.
Vulcan Value Partners likes Qorvo, Inc. (NASDAQ:QRVO)’s long-term prospects regardless of the Apple factor, as the fund noted in its Q1 2022 investor letter:
“Qorvo Inc. is one of the two major providers of radio frequency RF systems which are critical components of mobile devices including smart phones and the Internet of Things (IoT). Two transitory concerns have recently affected the company’s stock price. First, supply chain issues continue to be a constraint. Second, Apple recently announced its decision to decrease production of its iPhone SE model. Neither of these issues threatens their long-term competitive position. Qorvo’s value is stable and despite the recent pressure on the stock price, we feel its long-term prospects are promising.”
1. Liberty Global plc (NASDAQ:LBTYK)
Value of Baupost Group‘s 13F Position: $790 Million (LBTYK), $112 Million (LBTYA)
Number of Hedge Fund Shareholders: 38 (LBTYK), 31 (LBTYA)
Liberty Global plc (NASDAQ:LBTYK) is Seth Klarman’s top stock pick for the sixth straight quarter, as Baupost Group held 47.9 million class C shares of the company on September 30, down by 2% quarter-over-quarter. Klarman also owns 7.19 million class A shares of Liberty Global, which were left untouched during Q3. Hedge fund ownership of Liberty Global has cratered since the middle of 2016, falling by 71%.
Liberty Global plc (NASDAQ:LBTYK) faces some of the same problems that Liberty Media does in terms of its valuation, as the company trades at a notable discount in terms of a sum of the parts evaluation, as noted by Weitz Investment Management below. The company owns various broadband providers that operate throughout Europe, several of which struggled to retain customers during Q3.
All told, Liberty Global lost 14,000 customer relationships during the quarter compared to gaining 5,400 a year prior. More than half of those losses occurred in Belgium, where the company lost 7,700 customers and revenue fell by 12%. The company also lost at least 1,000 customers in Ireland, Slovakia, and Switzerland. Overall average revenue per unit also fell considerably during the quarter, by 10.6% to $61.62. Adjusted free cash flow fell to $148 million, just over half of what it was in the year-ago quarter.
Weitz Investment Management discussed why Liberty Global plc (NASDAQ:LBTYK) was one of its biggest Q3 detractors in the fund’s Q3 2022 investor letter:
“Carmax and Liberty Global plc (NASDAQ:LBTYA) were also detractors during the quarter and year-to-date. As for Liberty Global, the company owns a collection of European broadband providers that collectively trade at a discount to our “sum of the parts” value estimation. In recent quarters, their portfolio has had relatively stable, if uninspiring, results. The surging U.S. dollar dampens reported earnings, but management’s focus remains on growing local currency cash flows and identifying strategic opportunities to recognize the unappreciated value of their assets.”
For more of the latest stock picks worth considering for your portfolio, check out Ray Dalio’s Top 10 Dividend Stocks and the 12 Most Active Stocks To Buy.
Disclosure: None.
