In this article, we discuss 10 value stocks in Seth Klarman’s latest portfolio. If you want to skip our detailed analysis of these stocks, go directly to 5 Value Stocks in Seth Klarman’s Latest Portfolio.
There are few value investors who have enjoyed as much success in the stock market as Seth Klarman of Baupost Group. The veteran investor leads one of the largest hedge funds in the world, with a portfolio value of over $10 billion at the end of the fourth quarter of 2021. Klarman recently released an annual letter to investors, outlining his strategy for the turbulent market ahead. The chief of Baupost Group said that his fund was “especially suited” to investing during times of disruption, uncertainty, and unpredictability.
Klarman Focused on Long-Term Growth
Some of the broader trends that Klarman noted were worth following included political uncertainty, government interventions, climate change, and technological disruptions. Despite focus on these high growth areas, Klarman has clarified that his fund remains committed to finding long-term value in stocks, carefully considering valuations and business fundamentals to grow the portfolio over a relatively longer term, like three to five years, instead of focusing on high-flying stocks that go up and down in a week or a few months time.
Klarman, nicknamed the Oracle of Boston, stressed that he viewed the present market as characterized by “stretched valuations, deep complacency, and a host of looming risks”. As interest rates rise, investors who follow Klarman are eagerly looking at how these comments translate into action in the stock market. Some of the top value stocks in the portfolio of Seth Klarman at the end of December 2021 included Willis Towers Watson Public Limited Company (NASDAQ:WTW), Intel Corporation (NASDAQ:INTC), and Nexstar Media Group, Inc. (NASDAQ:NXST), among others discussed in detail below.
Klarman, while acknowledging in his letter that he believed that rising inflation and the related possibility of higher interest rates was posing a “real danger” to financial markets, also highlighted that Baupost Group had purchased hedges to protect itself from this crisis. The investor went as far as to say that many investors over the past decade or so have piled into speculative holdings that would one day resemble “roach motels”.
Our Methodology
The companies listed below were picked from the investment portfolio of Baupost Group at the end of the fourth quarter of 2021. The stocks that have a price-to-earnings (PE) ratio of less than 25 were preferred for the list. The exact PE Ratio is mentioned alongside each stock to provide readers with some additional context for their investment decisions.
Data from around 900 elite hedge funds tracked by Insider Monkey at the end of December 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Seth Klarman of Baupost Group
Value Stocks in Seth Klarman’s Latest Portfolio
10. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Number of Hedge Fund Holders: 50
PE Ratio: 24.75
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) provides software products and related services. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), with 15.7 million shares worth more than $1.2 billion.
According to the latest filings, Baupost Group owned over 3.8 million shares of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) at the end of the fourth quarter of 2021 worth $312 million, representing 3.08% of the Q4 portfolio.
Just like Willis Towers Watson Public Limited Company (NASDAQ:WTW), Intel Corporation (NASDAQ:INTC), and Nexstar Media Group, Inc. (NASDAQ:NXST), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is one of the stocks on the radar of elite investors.
In its Q4 2020 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) was one of them. Here is what the fund said:
“SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the leading provider of services to the financial sector. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) owns several companies including ALPS Fund Services, Advent, GlobeOp, Intralinks, Eze, and DST. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) operates an array of technology offerings for the financial services industry and provides mission-critical software. We like the company’s recurring revenue, high retention rates, strong free cash flow generation, and high rates of return on capital. Regulatory pressure, the need for greater transparency, and the growth of its core asset classes have led to greater demand for its services.”
9. NortonLifeLock Inc. (NASDAQ:NLOK)
Number of Hedge Fund Holders: 36
PE Ratio: 18.04
NortonLifeLock Inc. (NASDAQ:NLOK) provides cyber safety solutions. Latest data shows that Baupost Group owned more than 5.7 million shares of the company at the end of the fourth quarter of 2021 worth over $150 million, representing 1.48% of the portfolio.
Hedge funds have been loading up on NortonLifeLock Inc. (NASDAQ:NLOK) stock. At the end of the fourth quarter of 2021, 36 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in NortonLifeLock Inc. (NASDAQ:NLOK), up from 34 in the previous quarter worth $1.2 billion.
8. Veritiv Corporation (NYSE:VRTV)
Number of Hedge Fund Holders: 20
PE Ratio: 12.67
Veritiv Corporation (NYSE:VRTV) provides packaging products and services. Hedge funds have been piling into the stock in recent months. At the end of the fourth quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $511 million in Veritiv Corporation (NYSE:VRTV), compared to 11 in the preceding quarter worth $354 million.
Regulatory filings show that Baupost Group owned more than 3.5 million shares of Veritiv Corporation (NYSE:VRTV) at the end of December 2021 worth $436 million, representing 4.31% of the portfolio.
7. Qorvo, Inc. (NASDAQ:QRVO)
Number of Hedge Fund Holders: 44
PE Ratio: 12.63
Qorvo, Inc. (NASDAQ:QRVO) makes and sells semiconductor products. Securities filings reveal that Baupost Group owned over 5.9 million shares of the company at the end of December 2021 worth $929 million, representing 9.18% of the portfolio.
Top hedge funds are bullish on Qorvo, Inc. (NASDAQ:QRVO). Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Qorvo, Inc. (NASDAQ:QRVO), with 971,008 shares worth more than $151 million.
6. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 83
PE Ratio: 11.52
Micron Technology (NASDAQ:MU) makes and sells memory and storage products. The hedge fund sentiment around the stock is overwhelmingly positive. At the end of the fourth quarter of 2021, 83 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Micron Technology (NASDAQ:MU), up from 63 in the preceding quarter worth $3.8 billion.
The hedge fund of Seth Klarman entered the first quarter of 2022 with over 3.2 million shares of Micron Technology (NASDAQ:MU) in its portfolio worth more than $302 million, representing 2.98% of the portfolio.
Along with Willis Towers Watson Public Limited Company (NASDAQ:WTW), Intel Corporation (NASDAQ:INTC), and Nexstar Media Group, Inc. (NASDAQ:NXST), Micron Technology (NASDAQ:MU) is one of the stocks that institutional investors are buying.
In its Q3 2021 investor letter, Hazelton Capital Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:
“It’s hard to explain how shares of Micron Technology (NASDAQ:MU), manufacturer of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology (NASDAQ:MU) trades at just 8x 2022 estimated earnings. Micron Technology (NASDAQ:MU) is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron Technology (NASDAQ:MU) benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
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Disclosure: None. 10 Value Stocks in Seth Klarman’s Latest Portfolio is originally published on Insider Monkey.
