In this article, we discuss the 6 stocks value investing legend Seth Klarman is buying for the rest of 2022.
Seth Klarman, the man behind the Boston-based investment firm Baupost Group, is an expert in value investing. Often referred in the American media as “The Oracle of Boston”, inspired by Warren Buffett’s nickname “The Oracle of Omaha”, he currently serves as the firm’s chief executive, president and portfolio manager. According to Forbes, Klarman has a personal net worth of $1.5 billion. The 65-year old led Baupost Group to make it one of the largest hedge funds on Wall Street, posting an impressive average annual return of more than 20% since its inception. Author of “Margin of Safety,” a book that outlines his value investment strategies, Klarman follows the value investing philosophy of Benjamin Graham, the ‘‘father of value investing’, and believes that buying assets that are trading below their intrinsic market value is the best move to make.
In a June interview with Harvard Business School, the billionaire investor predicted that the Federal Reserve would prematurely end its rampant interest-rate hikes, stating that they were nothing more than “a giant financial experiment” that could spell trouble for funds that have taken too many risks in recent years. Klarman proved to be wrong here since the Fed is continuing to hike rates.
Speaking on the pandemic-related megatrends, Klarman noted that the current markets had brought plenty of opportunities due to market dislocations and trends. These included political uncertainty, government interventions, climate change and technological disruptions around the world. According to the value investor, these factors didn’t bother him too much since Baupost Group’s strategy is especially suited to investing during times of disruption, uncertainty and unpredictability.
As of June 30, Klarman’s fund managed a 13F portfolio with holdings worth $6.767 billion and around $30 billion in total assets. The fund has a top 10 holdings concentration of 68.05%. As of Q2 2022, Seth Klarman’s hedge fund sold out of 6 positions, reduced investments in 23 stocks, added 3 new assets, and boosted exposure to 4 already existing investments. Amazon.com, Inc. (NASDAQ:AMZN), Warner Bros. Discovery, Inc. (NASDAQ:WBD), and Liberty Media Corporation (NASDAQ:LSXMA) are some of the stocks Seth Klarman raised his stakes in.
Our Methodology
For this list, we used Seth Klarman’s Baupost Group Q2 2022 portfolio. We picked the stocks that Klarman’s fund either added to its portfolio, or increased its positions in for the three-month period ending June 30. For each stock, we have mentioned analyst ratings and hedge fund sentiments wherever applicable.
Value Investing Legend Seth Klarman is Buying These 6 Stocks for the Rest of 2022
6. Qorvo, Inc. (NASDAQ:QRVO)
Percentage of Baupost Group’s 13F portfolio: 9.7%
Value of Baupost Group’s Stake: $657.1 million
Number of Hedge Fund Holders: 30
Qorvo, Inc. (NASDAQ:QRVO) is an American semiconductor company that designs, manufactures, and supplies radio-frequency systems for applications that drive wireless and broadband communications. Seth Klarman’s Baupost Group is the company’s largest shareholder as of Q2 2022, with 6.96 million shares worth approximately $657.13 million.
Klarman’s fund increased its stake in the company by 5% in the second quarter.
Earlier this August, Qorvo, Inc. announced that the U.S. Food and Drug Administration had granted emergency use authorization for the Qorvo Omnia SARS-CoV-2 Antigen Test in POC settings. The test is authorized for the qualitative detection of viral antigens from SARS-CoV-2 in nasal swab specimens from individuals who are suspected of COVID-19.
On August 4, Craig-Hallum analyst Anthony Stoss lowered the price target on Qorvo, Inc. to $140 from $180 and maintained a Buy rating on the shares. According to the analyst, the company reported roughly in-line revenues and adjusted EPS at the high-end of guidance. Although the analyst retains some concerns regarding smartphone weaknesses, he believes that IDP continues to drive upside for Qorvo.
At the end of the second quarter of 2022, 30 hedge funds held stakes in Qorvo, Inc. worth $1.17 billion. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Qorvo, Inc., with 725,114 shares worth more than $70 million. On August 3, the semiconductor company announced market-beating earnings for the first quarter of its fiscal 2023. The company reported earnings per share of $2.25 to beat estimates by $0.13. The company’s revenue for the quarter came in at $1.04 billion, ahead of the consensus by $6.76 million.
In addition to Amazon.com, Inc., Warner Bros. Discovery, Inc., and Liberty Media Corporation, value investing legend Seth Klarman loves Qorvo, Inc..
Here is what investment management firm Vulcan Value Partners had to say about Qorvo, Inc. in its first-quarter 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.”
5. Liberty Media Corporation (NASDAQ:LSXMA)
Percentage of Baupost Group’s 13F portfolio: 7.05%
Value of Baupost Group’s Stake: $477.5 million
Number of Hedge Fund Holders: 44
Liberty Media Corporation, commonly referred to as Liberty Media or just Liberty, is an American mass media company that operates through three divisions, reflecting the company’s ownership stakes in Formula One, SiriusXM, and the Atlanta Braves Major League Baseball team. Seth Klarman’s Baupost Group owns over 13.24 million shares of Liberty Media Corporation, accounting for 7.05% of its 13F portfolio. Klarman’s fund increased his hold in the company by 20% in the second quarter.
On August 12, Liberty Media Corporation announced that it had closed its previously announced private offering of $475 million aggregate principal amount of its 2.25% convertible senior notes due 2027. These included notes, which will be convertible into cash, with an aggregate principal amount of $50 million in accordance with an option given to the initial purchasers.
Deutsche Bank analyst Bryan Kraft lowered the price target on Liberty Media Corporation to $74 from $76 and kept a Buy rating on the shares on August 23, stating that he sees an attractive risk/reward profile at current share levels. According to Kraft, investors should buy the company’s shares because there is a high probability that Liberty Media will make use of structural solutions aimed at lowering the stock’s net asset value discount.
According to the company’s Q3 earnings report released on August 5, Liberty Media Corporation recorded earnings per share of $1.24, surpassing market estimates by $0.52. Additionally, the company’s revenue for the quarter came in at $2.25 billion, beating the consensus estimate by $12.38 million.
As of Q2 2022, 44 of the 895 hedge funds tracked by Insider Monkey were long Liberty Media Corporation, holding shares worth $1.7 billion. This is compared to 46 hedge funds that held stakes worth $2.2 billion in the previous quarter. Warren Buffett’s Berkshire Hathaway was the largest shareholder with ownership of 43.2 million shares valued at $1.56 million.
4. Gray Television, Inc. (NYSE:GTN)
Percentage of Baupost Group’s 13F portfolio: 0.56%
Value of Baupost Group’s Stake: $38.17 million
Number of Hedge Fund Holders: 25
Founded in 1946 as Gray Communications Systems, Gray Television, Inc. (NYSE:GTN) is an American publicly traded television broadcasting company that owns or operates 180 stations across the United States in 113 markets. Value investor Seth Klarman boosted his stake in the company by 76%, reaching a total stake value of $38.17 million.
25 hedge funds were long Gray Television, Inc. at the close of the second quarter of 2022, with combined positions worth $236 million. In contrast, 18 hedge funds held $132.47 million worth of stakes in the broadcasting firm a quarter ago. Anand Desai’s Darsana Capital Partners is the company’s leading stakeholder, with stakes worth approximately $69.93 million.
For the fiscal second quarter of 2022, Gray Television, Inc. recorded $868 million in revenue, showing an increase of 58.68% from the year-ago quarter, and beating estimates by $13.03 million. The company’s EPS of $0.91 was also recorded above analysts’ estimates by $0.04.
Much like Amazon.com, Inc., Warner Bros. Discovery, Inc., and Liberty Media Corporation, Seth Klarman increased his stakes in Gray Television, Inc..
3. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Percentage of Baupost Group’s 13F portfolio: 3.56%
Value of Baupost Group’s Stake: $241.56 million
Number of Hedge Fund Holders: 68
Warner Bros. Discovery, Inc. is an American multinational mass media and entertainment conglomerate that offers consumers a differentiated portfolio of content, brands and franchises across television, film, streaming and gaming. Investment firm Baupost Group holds 18 million WBD stocks as of Q2 2022.
Klarman’s fund initiated a new stake in the company during Q2.
Earlier this August, Citi analyst Jason Bazinet lowered the price target on Warner Bros. Discovery, Inc. to $21 from $29 and kept a Buy rating on the shares post the Q2 results. The analyst continues to like the company based on the merits of its direct-to-consumer pivot and potential synergies from its recently closed merger.
At the end of the second quarter of 2022, 68 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Warner Bros. Discovery, Inc., up from 47 in the previous quarter worth $790 million. Among the hedge funds being tracked by Insider Monkey, New York-based firm Laurion Capital Management is a leading shareholder in Warner Bros. Discovery, Inc., with 13.5 million shares worth more than $338 million.
Here is what Longleaf Partners said about Warner Bros. Discovery, Inc. in its second quarter investor letter:
“Warner Bros. Discovery, Inc. (NASDAQ:WBD) – A new purchase within the last year, media conglomerate Warner Bros Discovery’s (WBD) stock price has been materially impacted by a terrible Netflix quarter (that probably is a good sign for WBD long-term) and fears of a downturn impacting advertising revenues and subscribers. While we believe these are valid concerns, media has historically been an attractive industry for our style of investing and media companies have been inflation beneficiaries. While the market is taking a “show me” approach to see how the merger will unfold, we believe the company has multiple levers to grow free cash flow per share. We saw eight different insiders buy shares personally in the quarter, which is an extremely strong vote of confidence from people who have a clear view of the challenges and opportunities facing the company.”
2. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Percentage of Baupost Group’s 13F portfolio: 2.4%
Value of Baupost Group’s Stake: $162.88 million
Number of Hedge Fund Holders: 22
New Oriental Education & Technology Group Inc., more commonly referred to as New Oriental, is a provider of private educational services in China. Securities filings reveal that Seth Klarman’s Baupost Group owned over 8 million shares of New Oriental Education & Technology Group Inc. at the end of June 2022 worth $162.88 million, representing 2.4% of the portfolio. EDU was a new arrival in Klarman’s portfolio in the second quarter.
On July 29, BofA analyst Lucy Yu upgraded New Oriental Education & Technology Group Inc. to Buy from Neutral with a price target of $36.60, up from $18.80. According to the analyst, the stock’s current share price is on par with the company’s new cash and that fiscal year 2023 will “market a year of a new start.”
At the end of the second quarter of 2022, 22 hedge funds in the database of Insider Monkey held stakes worth $721 million in New Oriental Education & Technology Group Inc., compared to 23 in the preceding quarter worth $260 million.
In its Q3 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and New Oriental Education & Technology Group Inc. was one of them. Here is what the fund said:
“The quarter’s leading detractors were Chinese companies that were impacted by the CCP’s regulatory crackdown and liquidity concerns at property developer Evergrande. New Oriental Education & Technology Group Inc.—the largest provider of private educational services in China—moved sharply lower in July after policymakers implemented new rules which effectively turned Chinese tutoring companies into non-profits. Looking at New Oriental Education & Technology Group Inc., we closed our position as soon as government policy became clear and used the proceeds to allocate to existing holdings.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Percentage of Baupost Group’s 13F portfolio: 0.93%
Value of Baupost Group’s Stake: $ 64 million
Number of Hedge Fund Holders: 252
Known as “one of the most influential economic and cultural forces in the world”, Amazon.com, Inc. is a giant among giants in both the tech and the retail industries. During Q2 2022, Seth Klarman added the company to his portfolio with a total stake value of $63.51 million.
DA Davidson analyst Tom Forte maintained his Buy rating and $151 price target on Amazon.com, Inc. after the company disclosed a purchase of warehouse automation firm Cloostermans on September 12. According to the analyst, Amazon is making a “concerted effort” into the robotics / automation market with this acquisition coupled with the acquisition of iRobot announced in the previous month.
Among the hedge funds tracked by Insider Monkey, 252 funds were bullish on Amazon.com, Inc. at the end of Q2 2022. As of Q2, 2022, Ken Griffin’s Citadel Investment Group owned 66.08 million shares in Amazon.com, Inc.. The hedge fund’s total stake in the company stood at over $7.01 billion, which accounted for 1.8% of its 13F portfolio.
Vulcan Value Partners, an investment management firm, mentioned Amazon.com, Inc. in its second quarter 2022 investor letter. Here’s what it said:
“Amazon.com Inc. (NASDAQ:AMZN) has three components to its business model: online retail, cloud-based Amazon Web Services (AWS), and online advertising. We believe that the stock price has declined primarily due to its disappointing online retail results. Retail was extremely successful during COVID, and Amazon spent immensely to protect the consumer experience including buying extra inventory, buying inventory ahead of time, securing alternate shipping routes and adding extra warehouse space.
We believe this long-term behavior has been successful for Amazon as customer retention and engagement remain at high levels. Post-COVID, the company is in the process of rightsizing its cost structure, and it is facing a tough period of comparisons. The retail segment is the smallest contributor to our overall value. The majority of the company’s value is in AWS, which we believe is one of the best businesses in the world. AWS’ revenue is expected to be approximately $80 billion this year, which is nearly double the amount in 2020.
The company’s online advertising has turned into an attractive business that did not exist 15 years ago, and we estimate its revenue to be around $40 billion this year.”
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This article is originally published at Insider Monkey.
