Top 10 Stock Picks of Legendary Value Investor Seth Klarman

In this article, we discuss the top 10 stock picks of legendary value investor Seth Klarman.

Seth Klarman runs Boston-based hedge fund Baupost Group, which is an acronym derived from the names of a group of cofounders he met while studying for an MBA at Harvard Business School in 1983. Klarman has been an avid investor since his teenage, and has gone on to become one of the most revered investors on Wall Street. Klarman’s book ‘Margin of Safety’ enjoys a cult-like following in the financial world, and sells for as much as $3,000 given the limited number of copies in the market.

Since being founded in 1983, Baupost Group has posted an average annual return of more than 20% to investors. It boasts assets under management (AUM) of $10.12 billion as of the fourth quarter of 2021. The fund’s top 10 holdings represent 66% of its total portfolio. In Q4 2021, Baupost Group made additional purchases in 5 stocks, bought 6 new stocks, sold out of 9 stocks and reduced holdings in 11 stocks. The investments are distributed across a variety of sectors, with Technology, Services, Financial, Healthcare and Others featuring prominently in the portfolio. Some of the top stocks found in the portfolio of legendary value investor Seth Klarman include Alphabet Inc. (NASDAQ:GOOG), Meta Platforms, Inc. (NASDAQ:FB), and Intel Corporation (NASDAQ:INTC), among others mentioned below.

Seth Klarman of Baupost Group

Percentage of Baupost Group’s 13F holdings: 3.26%

Baupost Group’s Stake Value: $331.1 million

According to regulatory data from its Q4 13F filings, Seth Klarman’s Baupost Group held roughly 985,000 shares of Meta Platforms, Inc. (NASDAQ:FB), with a combined stake value of $331.1 million which accounted for 3.26% of its overall holdings. In total, 224 hedge funds were long on the social media giant’s company shares in the fourth quarter, with aggregate stakes worth $31.8 billion. Fisher Asset Management of billionaire Ken Fisher was a leading shareholder of Meta Platforms, Inc. (NASDAQ:FB) in the fourth quarter, with a stake consisting of 9.58 million shares with a value of $3.22 billion.

Citi analyst Ronald Josey on April 19 upgraded Meta Platforms, Inc. (NASDAQ:FB) to ‘Buy’ from ‘Neutral’, and revised the price target to $300 from $258. He sees the internet sector as “healthy” given that online consumer engagement continues to grow and become more immersive, and also sees multiple vectors ahead for sustained growth in the sector.

Fourth quarter EPS stood at $3.67 for Meta Platforms, Inc. (NASDAQ:FB), which missed estimates by $0.15. The company enjoyed a boom in revenue for Q4, where the recorded figure of $33.67 billion was up 19.95% year-0n-year and surpassed analysts’ forecasts by $230.60 million.

Rowan Street Capital LLC, an investment firm, discussed Meta Platforms, Inc. (NASDAQ:FB) in its Q1 2022 investor letter, stating:

“We are not traders, hedgers, market timers or “renters of stock.” We are strictly business owners and compounders of capital! And just like Mark Zuckerberg who has never sold when the stock of Facebook had declined by 25% or 50%+, and have always focused exclusively on the long term fundamentals of their respective businesses, you should expect us to do the same with our portfolio companies. We have owned Meta Platforms (NASDAQ:FB) in the portfolio since 2018, and are just as optimistic and confident in the long term prospects of the company despite the recent drop in stock price.”

Percentage of Baupost Group’s 13F holdings: 4.31%

Baupost Group’s Stake Value: $436.9 million

Up next on the list of Seth Klarman’s top 10 stocks to buy is Veritiv Corporation (NYSE:VRTV), a B2B provider of print, publishing, and packaging services, as well as logistics and supply chain management solutions. Baupost Group was the top shareholder of Veritiv Corporation (NYSE:VRTV) during the fourth quarter, holding a $436 million stake comprising of 3.56 million shares which represented 4.31% of the fund’s overall portfolio.

Investors were seen piling into Georgia-based Veritiv Corporation (NYSE:VRTV) in the fourth quarter, where 20 hedge funds were long on the company shares, in comparison to 11 in the previous quarter.  The company’s share price has exploded in recent times, recording a growth of 250.61% in the last 12 months and 45.15% in the last 6 months as of April 19.

In March, Veritiv Corporation (NYSE:VRTV) agreed to sell its Veritiv Canada business to Imperial Dade, in a deal with undisclosed terms and subject to approval from Canadian regulatory authorities. This deal is expected to close before the end of the second quarter, and proceeds from this sale will be used to finance Veritiv’s recently announced $200 million share repurchase program along with future growth initiatives.

Percentage of Baupost Group’s 13F Portfolio: 6.52%

Baupost Group’s Stake Value: $660.4 million

Alphabet Inc. (NASDAQ:GOOG) is up next on Seth Klarman’s list of top 10 stocks to buy. The technology giant featured in the portfolios of 158 hedge funds out of the 924 hedge funds tracked by Insider Monkey during the fourth quarter, with overall holdings worth $36.6 billion. This shows a positive trend from the previous quarter where 156 hedge funds owned stakes worth almost $35 billion in Alphabet Inc. (NASDAQ:GOOG).

Baupost Global owned 228,000 shares of Alphabet Inc. (NASDAQ:GOOG) in Q4 2021 at a value of $660.4 million. This amounts to a 6.52% slice of the fund’s overall portfolio, and signals a decrease of 22% in holding over the preceding quarter. In Q4 2021, TCI Fund Management was the largest shareholder of Alphabet Inc. (NASDAQ:GOOG) owning 2.95 million shares worth $8.54 billion.

On April 19, Rosenblatt analyst Barton Crockett initiated coverage of Alphabet Inc. (NASDAQ:GOOG) with a ‘Buy’ rating and $4,183 price target. The analyst notes that no firm is better positioned than Alphabet to take advantage of the online sphere, given its advantaged positioning for new ad privacy restrictions, dominance in viral video and emerging success in cloud services.

Percentage of Baupost Group’s 13F Portfolio: 7.16%

Baupost Group’s Stake Value: $725.5 million

Then there’s ViaSat, Inc. (NASDAQ:VSAT), a California-based communications firm which offers services such as satellite-based broadband internet. Billionaire Seth Klarman owned a $725 million stake in ViaSat, Inc. (NASDAQ:VSAT) during the fourth quarter, comprising of 16.28 million shares representing 7.16% of his overall portfolio. This made Baupost Group the largest shareholder of the firm in Q4 2021.

In April, ViaSat, Inc. (NASDAQ:VSAT) was awarded a validation by regulatory authorities in China for its in-flight connectivity system to be used by the Airbus A320 series of jets. ViaSat, Inc. (NASDAQ:VSAT) has also recently partnered up with Slovakia to provide Ukrainian refugees in Eastern Europe access to free high-speed internet using the firm’s satellite-enabled Community Internet system.

ViaSat, Inc. (NASDAQ:VSAT) posted an EPS of $0.33 in the fourth quarter, outperforming estimates by $0.11. The firm recorded quarterly revenue of $719.72 million by end of December, surpassing analysts’ forecasts by $4.68 million and growing 25.05% year-on-year.

Investors were keen on ViaSat, Inc. (NASDAQ:VSAT) in the fourth quarter of 2021, as 21 hedge funds held $1.03 billion worth of positions in the company. This shows a positive trend from the preceding quarter where 18 hedge funds held stakes in the communications firm.

Percentage of Baupost Group’s 13F Portfolio: 9.17%

Baupost Group’s Stake Value: $928.9 million

Intel Corporation (NASDAQ:INTC) shares comprise 9.17% of Seth Klarman’s total portfolio according to 13F filings for the fourth quarter. The billionaire owned more than 18 million shares of the company at a price tag of $928.9 million. Hedge funds were also bullish on Intel Corporation (NASDAQ:INTC) during Q4 2021, where 72 hedge funds reported bullish bets on the company shares as opposed to 66 hedge funds a quarter ago.

On April 12, Citi analyst Christopher Danely maintained a ‘Neutral’ rating on Intel Corporation (NASDAQ:INTC) shares, and set a price target of $55, on the back of lower than expected growth in notebook shipments and his belief that PC sales could slow down in the second half of 2022.

For the fourth quarter, Intel Corporation (NASDAQ:INTC) reported earnings per share of $1.09, exceeding analysts’ forecasts by $0.18. $19.53 billion in quarterly revenue also outperformed estimates by $1.21 billion.

Here is what ClearBridge Investments had to say about Intel Corporation (NASDAQ:INTC) in its Q1 2022 investor letter:

“In the early days of the invasion, we made two measured changes to the portfolio based on longer-term fallout we anticipate from Russia’s invasion of Ukraine. We initiated a position in Intel (NASDAQ:INTC).

Over the last year, Pat Gelsinger, Intel’s new CEO, has devised a bold and aggressive strategy shift for the company. Gelsinger wants to open Intel’s factories to manufacture chips for competitors and thereby increase the utilization of Intel’s machinery. Doing so could increase the company’s returns and profits and bolster its competitive moat. While we admired these moves and saw their potential merit, we sat on the sidelines.

Intel’s repositioning requires tens of billions of dollars of increased investment and entails more risk than we are usually comfortable with. Russia’s invasion of Ukraine, however, changed our calculus. It revealed the fragility of the international order and drove home the importance of local manufacturing for critical industries like semiconductors.

Over several decades Taiwan has become the leading source for cutting-edge computer chips. With China determined to control Taiwan, this poses a critical strategic risk for the U.S. and the West. Concern over this threat has simmered for years but the war in Ukraine marks a boiling point. Indeed, just two weeks after Russia invaded Ukraine, Germany offered Intel over €5 billion in subsidies to build a plant in-country. We expect the U.S. will soon do the same. As Intel embarks on this new course, there is significant, long-term upside potential for the shares. This strategy entails meaningful risks, but at the $45 price we paid for our shares, we believe the risk/reward was asymmetrically skewed in our favor.”

Percentage of Baupost Group’s 13F Portfolio: 9.18%

Baupost Group’s Stake Value: $929.9 million

Baupost Group’s Stake Value: $1.51 billion

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