In mid August, the Baupost Group filed its 13F for the second quarter of 2013, disclosing many of its long equity positions as of the end of June. Baupost is managed by Seth Klarman, the value investor and author of Margin of Safety (copies of the book have sold for over $1,000). It is one of the hundreds of hedge funds which we track as part of our work developing investment strategies (for example, we have found that the most popular small cap stocks generate an average excess return of 18 percentage points per year). Learn more about our small cap strategy. Our own portfolio based on these findings outperformed the S&P 500 by 33 percentage points in the last 11 months. We also like to compare a manager’s most recent 13F to the previous one to see what they had been doing in the previous quarter. Here are three things which we noticed from Klarman’s most recent 13F (see the full list of his stock picks over time).
Semiconductor companies. Baupost initiated positions in two semiconductor related companies: it bought about 42 million shares of data storage device manufacturer Micron Technology, Inc. (NASDAQ:MU) and 2.8 million shares of semiconductor testing company ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS). Micron has more than doubled in price over the last year, and while it has been unprofitable on a trailing basis it did break into the black for the fiscal quarter which ended in May. Wall Street analysts predict that it will do well next year, and so the forward P/E is only 9, but that does seem a bit optimistic given recent results. ChipMOS’s market cap is only about $500 million (though with plenty of dollar volume for most investors) which places its valuation at 12 times trailing earnings, though recent results have been flat at least on the top line. We would note that ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS)’s beta is 2.7, demonstrating that its stock price tends to react strongly to changes in market conditions.
Taking profits on Elan. Pharmaceutical company Elan Corporation, plc (ADR) (NYSE:ELN) had been a new position for Klarman and his team in the first quarter of the year. Elan had been reported to be in buyout talks, and recently drug company Perrigo Company (NASDAQ:PRGO) submitted a bid. The process resulted in Elan gaining over 20% between April and June. Baupost apparently decided to cash out at some point and sold its entire stake in the company by the end of the quarter according to the 13F. Currently, Perrigo Company (NASDAQ:PRGO) has offered $16.50 per share with most of that figure in stock; Elan Corporation, plc (ADR) (NYSE:ELN) currently trades at just above $15.60.
Adding to BP. Klarman had been a big buyer of BP plc (ADR) (NYSE:BP) during Q1, and after adding more shares last quarter he has almost doubled his holdings of the oil company from the end of 2012. In a number of ways, BP looks like a textbook value stock: it trades at the book value of its equity (rare for a large oil and gas company) and at only 8 times expected earnings for 2014. The company has been selling off assets, which may help it focus on its core business. Income investors should also note the whopping 5.2% dividend yield. The Bill and Melinda Gates Foundation Trust had owned 7.1 million shares of BP at the end of March (check out more stocks the trust owns).
We think that BP plc (ADR) (NYSE:BP), even with its potentially continuing legal troubles, is worth considering as a value play given how cheap it is in earnings terms; over time, sentiment on the stock should improve and so its valuation should rise closer to that of its peers. The earnings multiples are also low at the two semiconductor related stocks we’ve discussed here, and investors who are interested in the industry may want to take a look though our initial impression would be concerned regarding Micron Technology, Inc. (NASDAQ:MU)’s recent troubles and ChipMOS’s close to flat sales figures.
Disclosure: I own no shares of any stocks mentioned in this article.