Billionaire Seth Klarman’s Top Five Positions Revisited

#3 Pioneer Natural Resources (NYSE:PXD)

–  Shares held (as of June 30): 4.07 million
–  Total Value (as of June 30): $563 million
–  Percent of Portfolio (as of June 30): 9.39%

Shares of Pioneer Natural Resources were down 12% in the third quarter, as WTI prices remained weak due to sector oversupply. Some shareholders may have also sold because of David Einhorn’s short thesis presentation on Pioneer, in which Einhorn lambasted Pioneer for burning shareholder capital without producing meaningful increases in reserves.

Given Klarman’s contrarian bent, he is likely undeterred. Capital burn or not, Pioneer is sitting on very valuable acreage in the Permian that could yield substantially more crude than current expectations. The valuable acreage also makes Pioneer a takeover candidate for larger super-majors. Andreas Halvorsen‘s Viking Global and Zach Schreiber’s Point State Capital also own shares of the leading independent.

#2 ViaSat, Inc. (NASDAQ:VSAT)

–  Shares held (as of June 30): 11.53 million
–  Total Value (as of June 30): $695 million
–  Percent of Portfolio (as of June 30): 11.58%

ViaSat shares rallied 6.7% in the quarter as the market brightened on the company’s overall prospects. ViaSat, which produces, designs, and markets wireless signal processing equipment and digital satellite telecommunications continued to grow in the quarter and reported inline revenue expectations in its most recent earnings report. John Overdeck And David Siegel’s Two Sigma Advisors also own shares.

#1 Cheniere Energy, Inc. (NYSE:LNG)

–  Shares held (as of June 30): 15.4 million
–  Total Value (as of June 30): $1.06 billion
–  Percent of Portfolio (as of June 30): 17.73%

Cheniere Energy shares fell 30% in the third quarter as natural gas prices are near their lows and China’s economy slows. Famed short investor Jim Chanos is short, and believes Cheniere is overvalued. Chanos estimates Cheniere will have $30 billion in debt with interest costs of $2 billion annually when all is said and done. Given a straight line depreciation of $1 billion a year, Chanos estimates Cheniere would earn just $1 billion in 2020 given analyst estimates of $4 billion in EBIDA if spot prices are as high as bulls estimate. If spot prices don’t rally as much as the bulls predict, Chanos believes Cheniere won’t have any free cash flow at all. Given the uncertainty, Chanos doesn’t understand why anyone would be long the stock. Chanos said:

Well, about half of their estimated 2020 or 2021 EBIDA of $4 billion is locked up in the take or pay about $2 billion of that. So it’s a little bit of a myth that all of it is accounted for. They still are going to be dependent on the spot market for a huge amount of the what the bulls think they’re going to make. And in fact the spot market’s in disarray already in liquefied natural gas. […] if you think all of these so-called trains, they’re expensive David. They’ll probably over $30 billion in debt Cheniere when they’re done building these things out. That will be $2 billion in interest annually. $30 billion worth of plant and equipment in the swamps of Louisiana is going to depreciate we think about $1 billion a year, 30 year life. [answering the question if LNG will be bought] I don’t think so. I mean who’s going to buy a company where again the cash flows are dependent on something happening from 2020 out. And where based on at least our numbers, there’s no free cash flow even when that happens.

Given Klarman’s position, he obviously disagrees with Chanos’ projections. Carl Icahn, who picked up 19.4 million shares good for 8.18% of Cheniere’s float by August, also disagrees with Chanos as well. Icahn believes the Cheniere Energy is a good bet, as long as management controls costs and reigns in its expansion plans.

Disclosure: None