In this piece, we will take a look at the 12 cheap value stocks to buy according to Seth Klarman. If you want to skip our analysis of the hedge fund and value investing, then take a look at 5 Cheap Value Stocks To Buy According To Seth Klarman.
Seth Klarman’s Baupost Group is one of the biggest hedge funds in the world. As of June 2022, the firm had $26.3 billion in assets under management (AUM), placing it at 15 in the list of hedge funds ranked by AUM. Unlike most other hedge funds, Mr. Klarman, who currently runs Baupost and is the one most commonly associated with the firm, did not actually set up Baupost. In fact, the hedge fund was set up by a group of professors from Harvard and MIT, with Mr. Klarman asked to run the fund. Baupost was set up by the capital Harvard professor William Poorvu made after selling shares in a television station. The hedge fund investor is a graduate of the illustrious Harvard Business School, where he received his Master in Business Administration (MBA) along with peers such as Jamie Dimon who heads the world’s biggest private bank JPMorgan Chase & Co. (NYSE:JPM) and Stephen Mandel of Lone Pine Capital.
Over time, Mr. Klarman would continue to capitalize on his Harvard and Ivy League links, and his first claim to fame would come during the financial crisis of 2008. This crisis would see him utilize an approach that is called Value Investing. Value Investing is quite popular in the financial world, and it has also influenced the trading decisions of Warren Buffett and enabled him to capitalize on a firm’s fundamentals to bet that the share price will rise in the future. Simply put, value investing involves evaluating a firm’s ‘intrinsic value’ and then checking to see how this compares to the current price in the market. The aftermath of the 2008 financial crisis saw Mr. Klarman literally seep in like an eagle on the equities market that had seen a massive outflow of capital. This would see him pile into distressed equities and bonds, which would see some of his bonds post double digit returns once the market stabilized.
These days, Baupost Group manages quite a sizeable portfolio and maintains its approach towards value investing. As of the first quarter of this year, the fund’s portfolio was worth $5.8 billion, placing it high on the list of the funds with the largest portfolios. Diving deeper into the latest portfolio, Mr. Klarman’s hedge fund added three new positions in the March quarter. These are Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Seagate Technology Holdings plc (NASDAQ:STX), and Skyworks Solutions, Inc. (NASDAQ:SWKS). Two of these are in the semiconductor industry, which appears to be quite crucial and reminds one of Mr. Klarman’s approach during the financial crisis. Just like the broader equity market was in a downturn back then, the chip sector was in the midst of a downturn throughout the tail end of last year and in early 2023 as well. In fact, fundamentally speaking, the sector is believed to have ‘bottomed out’ by the end of H1 2023 since the inventory that had created a glut in the market is finally believed to be clearing out. So naturally, and especially since the long term outlook for the chip sector estimates that it could be worth trillions of dollars, right now would appear to be the right time to buy and Baupost seems to have done exactly this.
The third addition to the Baupost portfolio is the biotechnology firm Jazz Pharmaceuticals. And this buy also hints at the classic Klarman. While Jazz Pharmaceuticals plc (NASDAQ:JAZZ)’s shares are currently trading for around $126, the average analyst share price target for the firm is $201.2. This lends Jazz a massive share price upside of $59% – which, mind you, is one of the highest upsides in Baupost Group’s latest investment portfolio.
So what is it that makes Jazz so special? Well, one of the firm’s drugs targets biliary tract cancers, which are a deadly set of diseases with little to no approved treatment options. Developed in partnership with Zymeworks Inc. (Nasdaq: ZYME), Jazz shared important upgrades about this treatment in June when it announced that the drug had demonstrated “meaningful benefit” in a Phase 2b trial.
As to Jazz Pharmaceuticals’ broader portfolio, here’s what management had to say during its first quarter of 2023 earnings report:
I’m excited to share the continued progress across our commercial portfolio. I’ll begin on Slide 8 with neuroscience and our oxybate franchise. We remain confident in the durability of our oxybate franchise and have established low sodium Xywav as the oxybate treatment of choice. Xywav became our largest product by net product sales as of the fourth quarter of 2022 and is annualizing at more than $1 billion as a result of continued adoption of both narcolepsy and IH. In the first quarter, average active Jazz oxybate patients increased to approximately 17,400 representing growth of approximately 5% and total oxybate revenues, including royalties from high sodium oxybate AG grew by approximately 6% compared to the year prior.
In narcolepsy, we continue to focus on educating patients and prescribers on the benefits of reducing sodium intake, and this message is resonating. We were very pleased with performance in the first quarter and exited 1Q ’23 with approximately 9,050 patients taking Xywav, an increase of approximately 500 patients from the fourth quarter of 2022. In IH, we see continued growth of new prescribers. And exiting the first quarter, there were approximately 2,000 IH patients taking Xywav. IH is a 24-hour sleep disorder, and Xywav is the first and only treatment-approved by FDA to treat the full condition of IH. Importantly, it has been studied across the multiple symptoms of IH. Our field force remains focused on educating prescribers on the importance of proper diagnosis and identifying appropriate patients for Xywav therapy.
And a recent Jazz survey of sleep specialists indicates that approximately 70% anticipate increasing their prescribing over the next 6 months.
With these details in mind, let’s take a look at Seth Klarman’s best value stocks. Some top picks are Gray Television, Inc. (NYSE:GTN), Herbalife Ltd. (NYSE:HLF), and Jazz Pharmaceuticals plc (NASDAQ:JAZZ).
Our Methodology
To compile our list of Seth Klarman’s top cheap and value stocks, we ranked all the stocks in his portfolio first by their trailing or forward P/E ratios and then by their analyst share price upside. Then, each stock was given a score based on its ranking. So stocks with the highest upside and lowest P/E received the highest ranking. These scores were averaged, and the top cheap and value stocks to buy according to Seth Klarman are as follows.
12 Cheap Value Stocks To Buy According To Seth Klarman
12. Fiserv, Inc. (NYSE:FI)
Baupost Group’s Q1 2023 Investment: $60 million
Fiserv, Inc. (NYSE:FI) is a financial technology and payments services provider. Mr. Klarman’s hedge fund had owned 533,382 shares of the stock that was traded as Fiserv, Inc. (NASDAQ:FISV). These were worth $60 million. Fiserv, Inc. (NYSE:FI), on the other hand, has a 5% share price upside, and the shares are rated Buy on average.
64 of the 943 hedge funds part of Insider Monkey’s March quarter of 2023 database had bought Fiserv, Inc. (NASDAQ:FISV)’s shares. Out of these, the largest investor was Natixis Global Asset Management’s Harris Associates through a $1.9 billion investment.
Like Herbalife Ltd. (NYSE:HLF), Gray Television, Inc. (NYSE:GTN), and Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Fiserv, Inc. (NASDAQ:FISV) is a great cheap and value stock to buy according to Seth Klarman.
11. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Baupost Group’s Q1 2023 Investment: $209 million
New Oriental Education & Technology Group Inc. (NYSE:EDU) is a Chinese firm that provides private education services. Its shares are rated Strong Buy on average and the stock has a sizeable 24% upside.
After digging through 943 hedge fund portfolios for this year’s first quarter, Insider Monkey discovered that 31 had invested in the company. New Oriental Education & Technology Group Inc. (NYSE:EDU)’s largest investor is Baupost Group through a stake worth $209 million.
10. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Baupost Group’s Q1 2023 Investment: $184 million
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is a software company that provides firms with the ability to manage their accounting, trading, and other financial functions. The firm made a big announcement in July when it revealed that its retirement income platform was managing $1 billion in assets.
Insider Monkey’s Q1 2023 survey of 943 hedge funds revealed that 43 had held a stake in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). Richard S. Pzena’s Pzena Investment Management is SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)’s largest hedge fund investor through a $789 million investment.
9. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Baupost Group’s Q1 2023 Investment: $199 million
Willis Towers Watson Public Limited Company (NASDAQ:WTW) provides services to the finance and other industries. Its shares have a 14% share price upside. Seth Klarman’s Baupost Group owns a $199 million stake in the company
By the end of March 2023, 42 of the 943 hedge funds part of Insider Monkey’s database had bought the firm’s shares. Out of these, the firm’s largest shareholder is Jean-Marie Eveillard’s First Eagle Investment Management through a stake worth $1.1 billion.
8. Lithia Motors, Inc. (NYSE:LAD)
Baupost Group’s Q1 2023 Investment: $14.8 million
Lithia Motors, Inc. (NYSE:LAD) sells cars and provides related services. The shares are rated Buy and have a small upside of $12. Mr. Klarman’s hedge fund had owned 65,043 shares of the company that were worth $14.8 million as of Q1 2023.
During the same time period, 37 out of the 943 hedge fund portfolios studied by Insider Monkey had invested in Lithia Motors, Inc. (NYSE:LAD). David Abrams’ Abrams Capital Management is its largest hedge fund investor, as it has invested $538 million in the firm.
7. The Liberty SiriusXM Group (NASDAQ:LSXMA)
Baupost Group’s Q1 2023 Investment: $415 million
The Liberty SiriusXM Group (NASDAQ:LSXMA) is an entertainment and broadcasting company headquartered in America. It is another stock that is rated Strong Buy on average and one which also has a massive upside of 48%.
As of the end of 2023’s first quarter, 42 of the 943 hedge funds profiled by Insider Monkey had bought a stake in the company. The Liberty SiriusXM Group (NASDAQ:LSXMA)’s largest investor is none other than Warren Buffett’s Berkshire Hathaway with a $1.2 billion investment.
6. Fidelity National Information Services, Inc. (NYSE:FIS)
Baupost Group’s Q1 2023 Investment: $263 million
Fidelity National Information Services, Inc. (NYSE:FIS) is a financial firm that provides banking, risk management, and other services. The firm started off July on a good note as it won awards for its platform’s functionality, customer base, and technology.
By sifting through 943 hedge funds for their Q1 2023 shareholdings, Insider Monkey discovered that 68 had invested in Fidelity National Information Services, Inc. (NYSE:FIS). Out of these, the largest shareholder is Ken Griffin’s Citadel Investment Group courtesy of a $283 million stake.
Gray Television, Inc. (NYSE:GTN), Herbalife Ltd. (NYSE:HLF), Fidelity National Information Services, Inc. (NYSE:FIS), and Jazz Pharmaceuticals plc (NASDAQ:JAZZ) are some great value stock picks according to Seth Klarman.
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Disclosure: None. 12 Cheap Value Stocks To Buy According To Seth Klarman is originally published on Insider Monkey.
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