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Seth Klarman’s Top Stock Picks

Known as the Oracle of Boston, Seth Andrew Klarman is the manager of the Baupost Group hedge fund. The Baupost Group was founded in 1982 by Harvard professors Bill Poorvu and his partners. Seth Klarman had recently graduated from the Harvard Business School when he was requested to manage this fund. The Baupost Group started off with an initial capital of $27 Million and is now among largest hedge funds in the world. A billionaire investor and author, Seth Klarman is also the author of the much-acclaimed book “Margin of Safety” published in 1991.

The coronavirus pandemic caught several old school value investors like Warren Buffett, Stan Druckenmiller, and Seth Klarman flat-footed. Their brains couldn’t function in a market environment where high growth tech stocks are flourishing and value stocks languishing as the Federal Reserve inventing new ways of manipulating the equity and bond markets. As a result, during the 2nd quarter, Seth Klarman was a significant seller, completely selling out of Cheniere Energy (LNG), Energy Transfer Equity (ET), XPO Logistics (XPO), Spirit Aerosystems (SPR), and Cars.com (CARS). His 6.7 million share Cheniere Energy (LNG) position would have been worth nearly $350 million today. Klarman’s largest brand new purchase was hospital operator HCA Healthcare Inc (HCA), his position valued at less than $100 million at the end of June. It is clear that Seth Klarman was reducing his exposure as the stock market was climbing higher and higher since bottoming on March 23rd.

BAUPOST GROUP Seth Klarman

Seth Klarman of Baupost Group

Insider Monkey told its readers to short the market in February and remove their short positions and go long on March 25th. Clearly our subscribers navigated these turbulent markets much better than Seth Klarman did. As the stock market reached a new all time high, our approach was proven more profitable than Seth Klarman’s. Let’s take a look at the top 5 stocks Klarman is betting on at the end of June.

The top 5 holdings of the Baupost Group as of June 30th are  Ebay Inc (NASDAQ:EBAY), Liberty Global Inc (NASDAQ:LBTY), Fox Corp (NASDAQ:FOX), Viasat Inc (NASDAQ:VSAT), Viacomcbs Inc (NASDAQ:VIAC). The 13F portfolio is heavily invested in these holdings and they account for 57% of the 13F Holdings.

Now let us take a look at each of these holdings.

Ebay Inc (NASDAQ:EBAY)

EBAY is currently the largest 13F position at 21% of the portfolio. Baupost holds 32,086,000 shares at a value of $1.68 billion. There has been no change quarter on quarter in the holdings. The stock currently trades at $57.03 as of Aug 19th, 2020. The stock started the year at $35.62 on Jan 2nd, 2020 and dropping to a low of $26.34 on Mar 23rd, 2020. Thereafter the stock has steadily increased to where it stands today at $57.03. The company reported better than expected 2nd Quarter 2020 results. Revenue was $2.9 billion, up by 18% Y/Y. Looking at its cash flow, the company generated $964 million of operating cash flow from continuing operations and $866 million of free cash flow during the second quarter of 2020.

EBAY was hugely popular among hedge funds in 2015 and hedge fund sentiment bottomed at the end of 2018. Heading into the second quarter, hedge funds were moderately bullish about EBAY (see the detailed chart here). Last month we shared Steel City Capital’s bullish EBAY thesis in this article, explaining why EBAY is a compelling investment idea.