We recently compiled a list of the Seth Klarman Stock Portfolio: Top 10 Stock Picks. In this article, we are going to take a look at where CRH plc (NYSE:CRH) stands against the other stocks in Seth Klarman’s portfolio.
Seth Klarman, the founder and CEO of Baupost Group, is a prominent figure in the investment industry, with his hedge fund ranking as the 12th largest globally. Renowned for his insightful investment strategies, Klarman is also the author of Margin of Safety, a highly respected book that outlines his philosophy on value investing and is known for its scarcity and high resale value, often fetching prices over $1,500.
After earning his MBA from Harvard Business School, Klarman was recruited by his professor, Bill Poorvu, to help manage investments, marking the beginning of a successful career in finance. His approach emphasizes thorough analysis and a disciplined perspective, setting him apart in a competitive market. Poorvu, along with his partners, Howard Stevenson, Jordan Baruch, and Isaac Auerbach, formed the company name Baupost from their last names. This decision did not reflect a desire to exclude Klarman but rather preserved the initial branding of the firm. When Baupost launched in 1982, it had an impressive initial capital of $27 million, a substantial sum at the time.
The founders initially intended to distribute this capital among multiple money managers; however, they struggled to find other conservative managers who fit their investment style, leading to Klarman being entrusted with the entire amount. His approach to investing was distinctly conservative, which later became a hallmark of his strategy. Klarman is also the author of the influential book Margin of Safety, which provides insights into his investment principles and has become highly sought after by investors, with copies sometimes selling for over $1,500.
Navigating the Everything Bubble: Seth Klarman on Investment Risks and Opportunities in a Disrupted Market
Seth Klarman observes that the current investment landscape resembles an “everything bubble,” characterized by an influx of money across various asset classes. This phenomenon has been fueled by historically low interest rates, some even hitting zero. Alongside this, technological advancements have accelerated, leading to disruptions in numerous industries, which presents both challenges and opportunities for investors. He appeared on CNBC in June 2023 where he said:
“The first thing is, I think we’ve been in an everything bubble. A lot of money has flowed into virtually everything. Historic low interest rates, even zero rates, have precipitated that bubble. You’ve also had a lot of changes in the business world; technology has accelerated if anything, and you’ve seen disruption in all kinds of businesses, which creates challenges and opportunities for investors.”
Klarman noted that certain asset classes, particularly private credit, have gained significant attention during this period. He highlights that speculation has surged in various areas, from cryptocurrencies to meme stocks and SPACs, emphasizing the need for investors to be mindful of the risks associated with speculation and to understand the context of the current environment.
“Some asset classes have become increasingly popular; private credit has had its day in the sun. You’ve had speculation during that bubble in all kinds of things, from crypto to meme stocks to SPACs, in a way that has some important reminders for people about the dangers of speculation and the importance of remembering what kind of environment you’re in.”
Understanding Value Investing: The Need for a Dynamic Approach in an Ever-Changing Market Landscape
Seth Klarman believes that the traditional academic definition of value investing, which focuses on buying the cheapest stocks based on numerical analysis, is too simplistic. Instead, he views the market through a broader lens. He suggests that all stocks can have value, but they can also be overvalued. To navigate this complexity, investors need a clear framework or set of guidelines to assess the value of various assets and businesses, helping them identify which ones are mis-priced. Here are some comments from his CNBC interview from back in Q2 2023:
“The academic definition of value is to buy the stock that’s cheapest by the numbers… The way I think about the market is not that there are growth stocks and value stocks, but rather that all stocks may hold value but that all stocks also could potentially be overvalued. You have to have a mechanism, a rubric, for figuring out the value of different kinds of assets, different kinds of businesses to identify which ones are trading particularly mispriced.”
In today’s rapidly changing market, Klarman emphasizes the importance of looking beyond current earnings. He warns that today’s earnings may not be sustainable; a business could face disruption or even become obsolete, but conversely, its value could increase significantly. Therefore, a forward-thinking approach is crucial for investors, allowing them to adapt to evolving market conditions while identifying long-term opportunities.
“In a world that’s changing as fast as this one, it’s really important to think about not just what are the earnings today. The earnings may not be here tomorrow. the business might be disrupted. the business may be gone, or they could be 50% to 100% more.”
Our Methodology
This article examines the top 10 stock holdings of Baupost Group for the second quarter of 2024, detailing the fund’s investments and the number of other hedge funds involved with these companies during the same period. The stocks are organized in ascending order based on the stake Baupost Group held in each, as of June 30, 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A construction worker wearing a hard hat and safety glasses at a site, carrying concrete blocks.
CRH plc (NYSE:CRH)
Total Number of Shares Owned: 4,226,602
Total Value of Shares Owned: $316,911,000
Number of Hedge Fund Investors: 75
In its recent Q2 2024 earnings report, CRH plc (NYSE:CRH) reported impressive revenue growth, primarily driven by robust demand for its building materials in various markets. This success highlights CRH plc (NYSE:CRH)’s ability to take advantage of ongoing infrastructure projects and residential construction.
A key point from the earnings report is CRH plc (NYSE:CRH)’s commitment to expanding its product offerings and improving operational efficiency. CRH plc (NYSE:CRH) has been investing in sustainable materials and technologies, aligning with the increasing demand for environmentally friendly construction solutions. This focus not only enhances CRH plc (NYSE:CRH)’s competitive edge but also meets customer preferences for sustainable options.
Moreover, CRH plc (NYSE:CRH)’s strategic acquisitions have significantly strengthened its market position. CRH plc (NYSE:CRH) has been pursuing targeted acquisitions to expand its portfolio and geographical reach. Recent news about the successful integration of these acquisitions shows CRH plc (NYSE:CRH)’s ability to leverage new assets to drive growth and enhance profit margins.
The global emphasis on infrastructure investment further supports a positive outlook for CRH plc (NYSE:CRH). With governments around the world increasing spending on infrastructure projects, CRH plc (NYSE:CRH) is well-positioned to benefit. Its diverse range of products and services allows the company to capture opportunities across commercial, residential, and public sectors.
L1 Capital International Fund stated the following regarding CRH plc (NYSE:CRH) in its Q2 2024 investor letter:
“Three companies detracted from the Fund’s performance by more than 0.5% – CRH plc (NYSE:CRH), Eagle Materials and Mastercard.
In our view, measuring the performance of investments over short time horizons such as three months is meaningless. While CRH and Eagle Materials detracted from the Fund’s returns this quarter, they were both leading positive contributors in the prior quarter. Since Inception of the Fund over 5 years ago, both companies have been top ten contributors to the Fund’s returns.
Recently, there has been some negative data that is causing a sell-off in the share price of CRH and Eagle Materials. Both these companies supply building products to the infrastructure, residential and commercial construction sectors. CRH has around 75% exposure to North America, with the remainder principally Europe (CRH has also recently acquired the majority of Adbri in Australia). Eagle Materials solely operates in the U.S.
Demand from the U.S. infrastructure sector is likely to remain robust for the medium term due to increased Federal and State spending, supported by the $1.2 trillion Infrastructure Investment and Jobs Act. Short term activity has been disrupted by bad weather – we think this is complete noise and is just slightly delaying projects, although CRH and Eagle Materials’ June 2024 quarterly results will likely be impacted…” (Click here to read the full text)
Overall CRH ranks 3rd on our list of the stocks to buy according to Seth Klarman. While we acknowledge the potential of CRH as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
