In this article we will take a look at the 10 best stocks to invest in right now according to Seth Klarman You can skip our detailed analysis of Klarman’s history, investment philosophy, and hedge fund performance, and go directly to the 5 Best Stocks to Invest In Right Now According to Seth Klarman.
Seth Klarman is an expert in value investing and the founder of Boston-based firm Baupost Group, which manages an asset portfolio of $12.56 billion. Klarman applies a risk avoidance strategy which includes hedging against risks via diversification. The Baupost Group applies the long-term, value-oriented strategy. The hedge fund has been managing assets for employees, endowments, foundations, and families since 1982.
Based on its Q1’2021 portfolio, Baupost holds significant stakes in top tech companies including Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and Intel Corporation (NASDAQ: INTC).
Alphabet Inc. (NASDAQ: GOOG) ranks sixth in the hedge fund’s portfolio. The fund increased its stake in the company by 266% in Q1 2021. Alphabet Inc. (NASDAQ: GOOG) is seeing an increased online activity and advertiser revenue. Google’s Cloud services have especially seen impressive growth with revenues amounting to $4.0 billion in Q1 2021 driven by strength and opportunity in both GCP and Workspace. Alphabet Inc. (NASDAQ: GOOG) sales went up 32% in Q1 2021 compared to a similar period in 2020.
Facebook, Inc. (NASDAQ: FB) ranks ninth in Baupost’s portfolio. Following solid financial results in Q1 2021, Truist Securities upgraded Facebook, Inc. (NASDAQ: FB) price target to $400 from $350. In addition, JMP Securities has raised its price projections on Facebook, Inc. (NASDAQ: FB) to $395 from $355 and has rated the stock as “Must Own” for advertising.
Intel Corporation (NASDAQ: INTC), in which Baupost’s increased its position by 29% in Q1 2021, is ranked first in the list of best stocks to invest in right now according to Seth Klarman. The company recently launched the new 11th Generation Intel Core H-series mobile processors dubbed “Tiger Lake-H.” It is the flagship model of the Intel Core i9-11980HK laptop processor, which the company says is used for content creation, gaming, and business. Further Intel Corporation (NASDAQ: INTC) says it is investing $3.5 billion towards expanding its production operations in New Mexico, where the company manufactures advanced semiconductor packaging technologies. Through this investment, Intel intends to transform its Rio Rancho campus into a domestic hub to produce advanced semiconductors.
Seth Klarman of Baupost Group
Diversification is the key in today’s volatile financial markets, which are causing trouble even for the experts. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26, 2021, our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017, and they lost 13% through November 16. That’s why we believe hedge fund sentiment is a handy indicator that investors should consider. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Best Stocks to Invest In Right Now According to Seth Klarman
10. PG&E Corporation (NYSE: PCG)
Klarman’s Stake Value: $359,001,000
Percentage of Seth Klarman’s 13F Portfolio: 2.85%
Number of Hedge Fund Holders: 65
PG&E Corporation (NYSE: PCG) is involved in selling and delivering natural gas and electricity to customers in northern and central California. The company ranks tenth in the list of 10 best stocks to invest in right now according to Seth Klarman. The energy company says it expects total costs from damage claims from wildfires linked to its power lines over the past two years to $1.1 billion.
PG&E Corporation (NYSE: PCG) has agreed with SBA Communications Corporation to sell its license agreements with wireless providers that attach their equipment to certain electric transmission towers and other utility structures. Wells Fargo upgraded the stock to “Overweight” from “Equal Weight” setting a price target of $15.50 from $12.
GoodHaven Capital Management, in their Q4 2020 investor letter, mentioned PG&E Corporation (NYSE: PCG). Here is what the fund said:
“During the period we purchased a new holding – PG&E Corporation – the California based utility (PCG). We expect that contrarian special situations will continue to (opportunistically) be an important part of the portfolio. After all, we bought PCG – which has filed Ch. 11 twice related to prior exposure to wildfire liabilities and staggering mismanagement – right in the middle of California’s recent heavy wildfire season. Our thinking here is that the reorganized utility has new regulatory protections that significantly reduces wildfire liability exposure, an above average rate growth profile and potentially much better management – they were searching for a new CEO when we made our investment. We purchased the stock at a high single digit forward earnings multiple, a discount to its peers that trade in the mid to high teens. Shortly after our purchases PG&E hired the well regarded Patti Poppe as their new CEO – we like this decision.”
9. Facebook, Inc. (NASDAQ: FB)
Klarman’s Stake Value: $382,005,000
Percentage of Seth Klarman’s 13F Portfolio: 3.04%
Number of Hedge Fund Holders: 257
Facebook, Inc. (NASDAQ: FB) ranks ninth in the list of 10 best stocks to invest in right now according to Seth Klarman. Baupost increased its stake in Facebook by 41% in Q1 2021. Piper Sandler has raised the Facebook, Inc. (NASDAQ: FB) price target to $335 from $285, and has maintained a “Neutral” rating. In April, Wedbush initiated a coverage on the stock rating it as “Neutral,” setting a price target of $355.
8. Micron Technology, Inc. (NASDAQ: MU)
Klarman’s Stake Value: $478,400,000
Percentage of Seth Klarman’s 13F Portfolio: 3.80%
Number of Hedge Fund Holders: 100
Micron Technology, Inc. (NASDAQ: MU) specializes in designing, producing, and selling memory and storage products. Micron Technology, Inc. (NASDAQ: MU) has announced $6.24 billion in revenue for the March quarter compared to $4.80 billion for the same period in 2020. The company’s GAAP net income during the quarter was $603 million, or $0.53 per diluted share.
In April, Fox Advisors’ analyst Steven Fox upgraded the stock to “Overweight” from “Equalweight,” and set a price target of $120.
Fiduciary Management, in their Q1 2021 investor letter, mentioned Micron Technology, Inc. (NASDAQ: MU). Here is what the fund said:
“Micron Technology, founded in 1978 and headquartered in Boise, Idaho, is focused on the production of innovative memory and storage solutions. Approximately 70% of its revenue (85% of operating income) comes from dynamic random-access memory (DRAM) and 25% from “not and” (NAND) solid storage, and the balance from other emerging memory technologies. By broad market segment, 2020 sales were approximately 25% Mobile, 20% Client and Graphics, 20% Enterprise and Cloud Server, 20% Solid State Storage Devices, and 15% Automotive, Industrial, and Consumer.
Good Business
• Following decades of consolidation culminating in the acquisition of Elpida Memory Inc. (out of bankruptcy) by Micron in 2013, DRAM entered a new paradigm, where none of the remaining three large players were seeking to win material market share. By 2019, nearly all of the global DRAM market was controlled by Samsung Electronics Co. Ltd. (46%), SK Hynix Inc. (30%), and Micron (21%) because migrating process technology to the next “node” has become increasingly difficult and costly. Barriers to entry have never been higher and the DRAM industry may soon be entering an extended period of structural undersupply. In the NAND market, where Micron Technology, Inc. (NASDAQ: MU) is #4 of 7 (soon to be 6), a similar dynamic is gradually playing out. Industry leader Samsung still intends on nearterm market share gains which may drive further consolidation.
• Demand growth remains strong because almost anywhere there is a processing unit, dynamic memory and storage are needed, and as performance increases, memory demand increases. While industry demand growth may come in part from memory being added to new devices, the larger driver will continue to be growth in memory per device, or “content per box.”
• PC DRAM and laptop NAND have been somewhat commoditized, but the end market demand for both is broadening. Micron is #1 in specialized DRAM for graphics, automotive, and networking. There are advantages to producing both DRAM and NAND, including shared research and development for other emerging and hybrid memory technologies.
• Full cycle margins have been rising, and the memory industry appears to be becoming somewhat less cyclical because of predictable supply growth trends. With this, we expect Micron will have greater full cycle margin than historically.
• As of 2019, Micron’s 5-year trailing ROIC was 18.3%.
• Micron Technology, Inc. (NASDAQ: MU)’s balance sheet tipped into a net cash position just nine quarters ago and had net cash and investments of $2.5 billion for the fourth quarter of 2020. Once carrying significant net debt, the stock was upgraded to investment grade in recent years by both Moody’s and Standard & Poor’s.Valuation
• Micron trades for a high single-digit 2022 EPS estimate.
• While cyclicality remains a trait of Micron, we feel the multiple will be sustainably higher over the next five years due to the oligopolistic nature of the market and the strong secular demand.
• Micron is likely to institute a dividend within a year or two.Management
• Sanjay Mehrotra joined Micron as CEO in February 2017. On his watch, Micron has significantly closed the technology and cost gap versus Samsung. Mr. Mehrotra is focused on technological competitiveness, continuous cost reduction, capital expenditure discipline, and return on investment. He initiated the company’s first $10 billion buyback program in May 2018. He co-founded SanDisk Corp. in 1988 and was CEO when SanDisk was sold to Western Digital Corp. in 2016.
Investment Thesis
The global memory industry has structurally improved since 2013 due to consolidation, higher barriers to supply growth, and the ongoing broadening of demand. While not recently evident, industry cyclicality is diminishing. Following an extraordinary demand-led increase, DRAM prices surged in fiscal year 2017 and 2018 (hyperscale cloud data center buying), but receded drastically in 2019 and 2020 ended September 30. Prior to COVID, Micron was anticipating a fairly smooth calendar year 2020, but demand was pulled forward from datacenter buyers (work-from-home trends) and Chinese smartphone manufacturers, building inventory anticipating trade frictions. Though smartphone end-demand rebounded in the second half of 2020, these two factors created a demand hole for a few quarters. Looking forward, the DRAM industry appears headed for structural undersupply, which supports firming prices, rising margins, and significant earnings growth ahead.”
7. Willis Towers Watson Public Limited Company (NASDAQ: WLTW)
Klarman’s Stake Value: $572,200,000
Percentage of Seth Klarman’s 13F Portfolio: 4.55%
Number of Hedge Fund Holders: 66
Willis Towers Watson Public Limited Company (NASDAQ: WLTW) is a financial company that offers advisory and broking to clients worldwide. Like Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and Intel Corporation (NASDAQ: INTC), Willis Towers Watson is one of the best stocks in Baupost’s portfolio. The stock ranks 7th in the list of best stocks to invest in right now.
The company has launched the latest version of its market-leading Radar software. The upgraded Radar 4.11 has improved features to enhance functionality, performance, and user experience. The Radar 4.11 offers more flexible modeling, stronger governance capabilities, and faster processing times.
Willis Towers Watson Public Limited Company (NASDAQ: WLTW) has signed a deal with Arthur J. Gallagher & Co. (NYSE: AJG) to see the AJG acquire part of Willis Towers Watson’s assets for $3.57 billion. Arthur J. Gallagher & Co will finance the acquisition with a combination of free cash, common equity, long-term debt, and short-term borrowings.
In February, Raymond James upgraded the stock to “Strong Buy” from “Outperform,” raising the price target to $280 from $225.
6. Alphabet Inc. (NASDAQ: GOOG)
Klarman’s Stake Value: $601,827,000
Percentage of Seth Klarman’s 13F Portfolio: 4.79%
Number of Hedge Fund Holders: 159
Alphabet Inc. (NASDAQ: GOOG) is the parent company of Google and offers online advertising services to companies worldwide. Baupost upped its stake in Google by 266% in Q1 2021, and it now ranks sixth in the list of 10 best stocks to invest in right now according to Seth Klarman. In its latest financial report, Alphabet Inc. (NASDAQ: GOOG) reported record profit for the second quarter in a row in addition to a $50 billion share buyback. The global tech giant has warned that increased online activities may delay the return to in-person activities.
Like Facebook, Inc. (NASDAQ: FB) and Intel Corporation (NASDAQ: INTC), Alphabet is one of the best stocks to invest in right now based on Klarman’s portfolio.
In Q1 2021, Google reported a 32% increase in sales than what the company reported in Q1 2020. The company’s shares went up around 4.3% to $2,390.10.
Alphabet Inc. (NASDAQ: GOOG)’s Google’s mobile wallet is expanding its reach globally following partnerships with Wise and Western Union. The new partnership will allow Google Pay users in the U.S to send cross-border payments through Western Union’s global financial network in India and Singapore.
In April, Evercore ISI’s analyst Mark Mahaney initiated a coverage on the stock and rated it as “Outperform,” giving it a price target of $2,525.
Polen Global Growth Fund, in its Q1 2021 investor letter, mentioned Alphabet Inc. (NASDAQ: GOOG). Here is what Polen Global Growth Fund has to say about Alphabet Inc. in its letter:
“For our top contributors, each generated strong returns for different, but fundamentally based reasons, in our opinion. Alphabet saw renewed strength recently as advertisers generally resumed spending after a short pause during the pandemic.
Alphabet experienced some challenging quarters in 2020 as many companies paused their advertising spend. But, the business bounced back recently, spurring a strong recovery in the company’s share price. Even during such a challenging period, the company still compounded revenue at 14% in constant currency for 2020.
This is partly due to Alphabet’s multiple growth engines. For example, while its search business was negative one quarter and only grew by 6% during another, YouTube ads and Google Cloud Platform (GCP) grew at over 30% and 46% during the quarter, respectively. YouTube and GCP combined now contribute over 50% of the company’s growth, which we believe is a testament to a strong culture of innovation, a long-term mindset, and prudent capital allocation. With search bouncing back this most recent quarter–growing 17% –we believe that Alphabet continues to be well-positioned to durably compound earnings at or above 15% for many years to come. It remains one of our largest positions.”
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Disclosure: None. 10 Best Stocks to Invest In Right Now According to Seth Klarman is originally published on Insider Monkey.
