In this article, we discuss the 6 defensive stocks to buy in 2022 according to Seth Klarman. If you want to skip our detailed analysis of Seth Klarman’s investment strategy and views on the current market situation, go directly to 3 Defensive Stocks To Buy in 2022 According to Seth Klarman.
Seth Klarman is the man behind Baupost Group, a hedge fund he was asked to run by a group of professors while he was studying for an MBA at Harvard Business School in 1982. He has been at the helm since, currently serving as its chief executive, president and portfolio manager. The 65-year old has established Baupost as one of the most renowned hedge funds on Wall Street, posting an impressive average annual return of more than 20% since being founded. Klarman is personally worth $1.5 billion according to Forbes, and has donated to various philanthropic causes worldwide, including sizeable donations to the Democratic party and causes in Israel.
Klarman follows the ‘value investing’ philosophy of Benjamin Graham, known as the ‘father of value investing’, and has authored a wildly successful book on value investing himself called ‘Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor’. He believes in buying assets that are trading below their intrinsic market value, and buying them at a margin of safety for the long-haul. The billionaire has a knack for spotting equities trading at a discount, and has been likened to ‘Oracle of Omaha’ Warren Buffett over the years due to his investment strategy, earning him the moniker ‘Oracle of Boston’.
Let’s Go ‘Value-Hunting’
In an annual letter written to investors in January, of which Business Insider attained a copy, Seth Klarman noted that the market was facing significant threats from burgeoning inflation and rising interest rates. He warned of an incoming crash, stating that the market was characterized by “stretched valuations and deep complacency.” Klarman also informed his investors that Baupost had purchased hedges to protect itself and possibly gain within the current uncertain macro environment. A disjointed market with such peculiar ups-and-downs present value investors a perfect opportunity to go value-hunting, according to Klarman, who sees commercial real estate as a viable investment. He also denounced the idea that Baupost would try to make easy money by betting on the “hottest high-flyers” of the day, rather he underlined a broader investment horizon for his stock picks that ranged from three to five years, not “next week or next quarter.”
Financial Experiment Gone Wrong
The Baupost Group CEO recently spoke to his alma-mater Harvard Business School and discussed a range of themes during a 70-minute webinar. He noted that the Fed doesn’t seem to know what it is doing, and present circumstances are akin to everybody being in a giant financial experiment that seems to be going wrong. He thinks that interest rates are rising as they should, because they had been kept artificially low for a long time. Klarman also contended that the US dollar is here to stay, and competition from the Chinese yuan, Swiss franc, Japanese yen and Euro presents no threat to its status as the global reserve currency.
Seth Klarman also talked in length about the Russian “war of aggression” against Ukraine, and berated Putin for an unnecessary war he has seemingly boxed his military into. The billionaire shared his views on the vast divide in American society, which in his view was beyond the social, economic, and political fractures of society, and stands exacerbated by a changing job market, growing technological divide, and the fact that everyone has a different version of reality due to the democratization of media, or rather the personalization of news.
Seth Klarman of Baupost Group
The current economic climate is fraught with many uncertainties and challenges, but investors can find comfort in defensive stocks which offer protection from the worst throes of the market. These stocks usually belong to sectors such as utilities, consumer staples, and healthcare; given that they enjoy strong consumer demand and robust earnings no matter what the economic situation. These companies also often pay dividends, and perform better than the market during a recession. Some examples of defensive stocks include Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and The Procter & Gamble Company (NYSE:PG). In this article, we’ll focus on defensive stocks to buy according to Seth Klarman.
Our Methodology
After an examination of Baupost Group’s 13F holdings for the first quarter of 2022, we picked 6 defensive stocks in its portfolio, which offer investors a good hedge in the current market situation. To give readers a perspective of what the larger hedge fund industry thinks about each stock, we’ve provided hedge fund sentiment calculated using Insider Monkey’s database of 912 elite hedge funds.
6 Defensive Stocks To Buy in 2022 According to Seth Klarman
6. Noble Corporation (NYSE:NE)
Percentage of Baupost Group’s 13F portfolio: 0.03%
Value of Baupost Group’s Stake: $3.46 million
Number of Hedge Fund Holders: 31
Noble Corporation (NYSE:NE) kicks off the list of defensive stocks to buy according to Seth Klarman. It provides offshore drilling services to the oil and gas companies operating in a variety of terrains around the world. The company has a 20-strong fleet of offshore drilling units, which includes 12 floaters and 8 jackups. Because it is positioned at the heart of the global energy markets, with drilling contracts in the Americas, Europe and Australia, Noble Corporation (NYSE:NE) has rallied 27.24% in the last 12 months, and 20.28% in the year so far as of June 17.
Investors were eager on the company in the first quarter of 2022, where 31 hedge funds owned positions worth $621.7 million, as compared to 24 hedge funds with nearly $374 million worth of stakes a quarter earlier. Seth Klarman’s Baupost Group, in the first quarter, owned approximately 105,000 shares of Noble Corporation (NYSE:NE) with a price tag of $3.46 million.
At the start of June, BTIG analyst Gregory Lewis upgraded Noble Corporation (NYSE:NE) to ‘Buy’ from ‘Neutral’ with a $60 price target. Lewis noted that a recovery in the offshore drilling industry continues to gain momentum, and that NE stock has gained 42% since announcing its merger with offshore drilling company Maersk Drilling in November 2021.
For Q1 2022, Noble Corporation’s (NYSE:NE) revenue of $210.2 million showed a boost of 127.44% in comparison to the year ago quarter, but fell short of analysts’ expectations by $25.9 million. EPS of -$0.12 was also recorded below market estimates by $0.20.
Like Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and The Procter & Gamble Company (NYSE:PG), Noble Corporation (NYSE:NE) is a noteworthy defensive stock to buy now.
5. BellRing Brands, Inc. (NYSE:BRBR)
Percentage of Baupost Group’s 13F portfolio: 0.11%
Value of Baupost Group’s Stake: $11.06 million
Number of Hedge Fund Holders: 29
BellRing Brands, Inc. (NYSE:BRBR) deals in the provision of sports nutrition products through its brands Premier Protein, PowerBar, and Dymatize. These include ready-to-drink protein shakes, protein powders, and nutrition bars for athletes. It was previously a business unit of consumer packaged goods company Post Holdings, Inc. (NYSE:POST), another defensive stock in Seth Klarman’s Q1 portfolio.
On May 9, Mizuho analyst John Baumgartner added BellRing Brands, Inc. (NYSE:BRBR) to the firm’s list of top stock picks, noting that it presented one of the rare positive stories for investors in the ongoing market slowdown. He gave the firm an unchanged ‘Buy’ rating and increased the price target to $33 from $30. On the same day, JPMorgan analyst Ken Goldman added BellRing Brands, Inc. (NYSE:BRBR) to the firm’s ‘Analyst Focus List’, noting that the market doesn’t fully appreciate how quickly BellRing’s sales should grow over the next couple years, and thinks that shares are priced attractively given the company’s strong fundamentals. BellRing Brands (NYSE:BRBR) recently announced the launch of a $50 million share repurchase program, with buybacks set to take place within the next two years.
For the first quarter, BellRing Brands, Inc. (NYSE:BRBR) reported an EPS of $0.23, exceeding analysts’ estimates by $0.07. Quarterly revenue of $315.20 million also featured above market forecasts by $7.75 million.
Seth Klarman owned a $11 million position in BellRing Brands, Inc. (NYSE:BRBR) at the end of the first quarter of 2022, consisting of nearly 480,000 shares. Overall, hedge fund sentiment was positive on BRBR stock, with 29 hedge funds reporting ownership of stakes, as compared to 22 hedge funds a quarter earlier.
4. Trilogy Metals Inc. (NYSE:TMQ)
Percentage of Baupost Group’s 13F portfolio: 0.12%
Value of Baupost Group’s Stake: $11.68 million
Number of Hedge Fund Holders: 7
Trilogy Metals Inc. (NYSE:TMQ) is up next on the list of defensive stocks to buy according to Seth Klarman. It operates as a base metals exploration firm, with interests in copper, gold, zinc, silver and other minerals. The Vancouver-based company was previously known as NovaCopper Inc. until it changed its name in 2016. Trilogy Metals Inc. (NYSE:TMQ) owns and develops the Upper Kobuk Mineral Projects in Alaska’s Ambler Mining District.
The firm has suffered in recent months, after the U.S. Department of the Interior filed a motion to remand the final Environmental Impact Statement and suspend the right-of-way permit for the Ambler Access project, after concerns arose regarding the project’s environmental impact. The proposed 211-mile, controlled industrial access road would provide access to the Ambler Mining District in northwestern Alaska, where TMQ holds its primary mining interests. Although this development has raised concerns regarding the project’s completion, Trilogy Metals Inc. (NYSE:TMQ) remains a high risk/reward stock given it has billions of dollars in estimate reserves and a potential change in US administration could put the project back on track. On June 13, National Bank analyst Rabi Nizami reiterated a ‘Sector Perform’ rating on Trilogy Metals Inc. (NYSE:TMQ) shares, and lowered the price target to C$1.75 from C$2.50.
As of the end of the first quarter of 2022, 7 hedge funds reported ownership of stakes in Trilogy Metals Inc. (NYSE:TMQ) with a combined value of $30.45 million. In comparison, 8 hedge funds owned aggregate positions $50.9 million in the company a quarter earlier. Baupost Group’s stake in TMQ at the close of the first quarter stood at 11.12 million shares with a price tag of $11.68 million, representing 0.12% of its total portfolio.
Trilogy Metals Inc. (NYSE:TMQ) is a good defensive stock for investors in 2022, along with names such as Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO) and The Procter & Gamble Company (NYSE:PG).
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