In this article, we discuss 5 stocks legendary value investor Seth Klarman is buying in 2022. If you want to read our detailed analysis of Klarman’s stock picks and hedge fund history, go directly to Legendary Value Investor Seth Klarman is Buying These 10 Stocks.
5. ironSource Ltd. (NYSE:IS)
Baupost Group’s Stake Value: $38.09 million
Percentage of Baupost Group’s 13F Portfolio: 0.4%
Number of Hedge Fund Holders: 24
Increase in Stake: 99%
ironSource Ltd. (NYSE:IS) operates as a business platform for app developers and telecom operators. The Israeli company enables mobile app game developers to monetize content, grow and engage users, and analyze and optimize business performance. Baupost Group increased its stake in the firm by 99% in the first quarter of 2022.
On May 13, Needham analyst Bernie McTernan gave ironSource Ltd. (NYSE:IS) an unchanged ‘Buy’ rating, and lowered the price target to $6 from $10. McTernan is bullish on the firm as the leading game-tech operator in the in-app mobile gaming advertising industry, noting that it has potential to move beyond mobile gaming to the whole mobile app advertising ecosystem.
At the close of Q4 2021, 24 hedge funds held positions in ironSource Ltd. (NYSE:IS) with a combined worth of $457 million. This is down from 29 hedge funds a quarter earlier.
For the first quarter, EPS for the firm came in-line with estimates at $0.05. Quarterly revenue of $189.7 million outperformed estimates by $6.2 million.
4. Encompass Health Corporation (NYSE:EHC)
Baupost Group’s Stake Value: $213.33 million
Percentage of Baupost Group’s 13F Portfolio: 2.29%
Number of Hedge Fund Holders: 40
Increase in Stake: 319%
Encompass Health Corporation (NYSE:EHC) provides post-acute healthcare services through in-facility and home-care segments. Seth Klarman increased his stake in the firm from 716,000 shares in Q4 2021 to 3 million shares in the first quarter of 2022, recording a massive increase of 319%.
On April 27, Encompass Health Corporation (NYSE:EHC) reported its Q1 earnings, and EPS came in at $0.97, above estimates by $0.05. The company pulled in a revenue of $1.33 billion for the quarter, outperforming estimates by $8.7 million and growing 8.39% in comparison to the year-ago quarter.
Truist analyst David MacDonald on April 7 raised the firm’s price target on Encompass Health Corporation (NYSE:EHC) to $85 from $78 and reiterated a ‘Buy’ rating on the company shares. He remains bullish on the healthcare services industry which boasts attractive tailwinds and underlying demand drivers.
Of the 900+ elite hedge funds in the database of Insider Monkey, 40 reported ownership of positions in Encompass Health Corporation (NYSE:EHC) at the end of December. This is down from 44 hedge funds with stakes in the firm as of the end of September.
Here is what Heartland Advisors had to say about the market position of Encompass Health Corporation in its Q4 2021 investor letter:
“COVID complications. Shares of many Health Care companies lagged as the continuing threat of COVID-19 dampened demand for elective medical procedures and health care providers struggled to maintain adequate staffing in the face of burnout and resistance to vaccine mandates. The Strategy’s holdings in the sector trailed the benchmark average, and the group contained a key detractor, Encompass Health Corporation (EHC).
Encompass provides inpatient rehabilitation services as well as home-based health and hospice care. Both businesses enjoy a competitive advantage over many of their peers and, we believe, are well positioned to grow organically, and acquire smaller competitors that could further economies of scale.
A labor shortage has taken a toll on sales and profit margins at Encompass as the company struggles to fill positions in a challenging environment for nursing wages and availability. Revenues have also been hurt by a slowdown in elective surgeries performed, which results in a smaller pool of patients in need of rehabilitation services.
When we took a stake in Encompass late in the summer of 2020, we recognized that COVID-related headwinds could endure longer than anticipated. However, the team believes the current challenges will eventually fade as enhanced nurse recruiting outreach helps mitigate staffing pressures while COVID-19 containment and treatment efforts gain traction. With shares producing an 8% free cash flow yield and trading at just 9x 2022 enterprise value/earnings before interest, taxes, depreciation, and amortization, we believe our patience will be rewarded.”
3. Gray Television, Inc. (NYSE:GTN)
Baupost Group’s Stake Value: $28.49 million
Percentage of Baupost Group’s 13F Portfolio: 0.3%
Number of Hedge Fund Holders: 19
Increase in Stake: New Addition To Portfolio
Gray Television, Inc. (NYSE:GTN) was a new addition to the portfolio of legendary value investor Seth Klarman in the first quarter of 2021. His stake in the firm consisted of 1.29 million shares worth $28.5 million. Based in Atlanta, Gray Television, Inc. (NYSE:GTN) operates as a television broadcasting company which owns television stations and produces television content for viewership across local markets in the United States.
Loop Capital analyst Alan Gould on March 7 maintained a ‘Buy’ rating on Gray Television, Inc. (NYSE:GTN) shares, stating that it trades at the lowest multiple of all broadcasters despite it offering one of the strongest TV station portfolios. The analyst increased the price target on the shares to $33 from $30.
19 hedge funds were long Gray Television, Inc. (NYSE:GTN) at the close of the fourth quarter, with combined positions worth $96.7 million. In contrast, 20 hedge funds held $74.1 million worth of stakes in the broadcasting firm a quarter ago.
For the first quarter, Gray Television, Inc. (NYSE:GTN) recorded $827 million in revenue, showing an increase of 52% from the year-ago quarter, and beating estimates by $21.8 million. EPS of $0.59 was also recorded above analysts’ estimates by $0.26.
2. BellRing Brands, Inc. (NYSE:BRBR)
Baupost Group’s Stake Value: $11.06 million
Percentage of Baupost Group’s 13F Portfolio: 0.11%
Number of Hedge Fund Holders: 22
Increase in Stake: New Addition To Portfolio
BellRing Brands, Inc. (NYSE:BRBR) provides sports nutrition products through its brands Premier Protein and Dymatize, which include protein shakes, powders and nutrition bars. It was formerly a business unit of consumer packaged goods company Post Holdings, Inc. (NYSE:POST).
On May 9, JPMorgan analyst Ken Goldman added BellRing Brands, Inc. (NYSE:BRBR) to the firm’s ‘Analyst Focus List’ as a “growth strategy selection”, with 34% upside to his price target of $34 as of December 2022. Even after recent outperformance, the analyst sees the company shares as attractive, and maintains that the market doesn’t fully appreciate how quickly the firm’s sales are poised to grow in the next two years. He models organic growth of 13.8% over the next two years. Mizuho analyst John Baumgartner also added BellRing Brands, Inc. (NYSE:BRBR) to the firm’s ‘Top Picks’ list, and was bullish on the shares with a ‘Buy’ rating and a price target of $33, up from $30.
Seth Klarman knows how to spot value in the stock market, and aptly initiated a position in the high-flying nutrition company in the first quarter of 2022. He held roughly 480,000 shares of BellRing Brands, Inc. (NYSE:BRBR) at a value of $11.06 million.
The firm posted EPS of $0.23 in the first quarter, beating estimates by $0.07. $315.20 million in revenue for the quarter was also above analysts’ forecasts by $7.75 million.
Overall, investors were seen buying into BellRing Brands, Inc. (NYSE:BRBR). At the end of the fourth quarter, 22 hedge funds reported ownership of positions in the company, as compared to 20 hedge funds in the previous quarter.
1. Post Holdings, Inc. (NYSE:POST)
Baupost Group’s Stake Value: $26.2 million
Percentage of Baupost Group’s 13F Portfolio: 0.28%
Number of Hedge Fund Holders: 35
Increase in Stake: New Addition To Portfolio
Legendary value investor Seth Klarman initiated a $26 million position in Post Holdings, Inc. (NYSE:POST) in the first quarter consisting of 378,000 shares. This represented 0.28% of the famed investor’s total Q1 2022 portfolio.
Post Holdings, Inc. (NYSE:POST) operates as a consumer packaged goods company which sells a range of frozen food, food ingredient, refrigerated food, and cereal food products across the United States.
Investors were eager on Post Holdings, Inc. (NYSE:POST) shares at the close of the fourth quarter, with 35 hedge funds holding stakes in the firm with a combined value of $1.54 billion. This is up from 27 hedge funds at the end of the third quarter with $1.43 billion worth of positions in the food goods company. William Duhamel’s Route One Investment Company was the largest shareholder of the firm in the first quarter, with a significant stake worth $484.9 million.
On May 9, Piper Sandler analyst Michael Lavery raised the firm’s price target on Post Holdings, Inc. (NYSE:POST) to $96 from $84 and maintained an ‘Overweight’ rating on the company shares. He remains bullish on the firm and raised the price target to reflect a faster recovery in Foodservice margins. Citi analyst Wendy Nicholson was also positive on Post Holdings, Inc. (NYSE:POST), with a ‘Buy’ rating and a $92 price target.
Heartland Advisors, an investment firm, discussed Post Holdings, Inc. in its Q1 2021 investor letter. The fund said:
“The run up in equity prices over the past several months has narrowed the pool of attractively valued businesses. Economically sensitive areas of the market, in particular, have seen valuations stretched—but the impact of investor exuberance is evident in share prices of companies throughout the broader market. In response, we continue to focus on finding and owning companies that are poised to succeed against a variety of backdrops or those that are priced at significant discounts to peers regardless of the sector or industry. Recent addition Post Holdings, Inc. (POST) is an example of the type of business we’ve found attractive.
Post manufactures and markets food products through five business lines including a breakfast cereals unit, a food service division, refrigerated retail products, and active nutrition. Shares of the company came under pressure due to the severe impact the COVID-19 economic shutdown had on its food service segment.
Additionally, investors were wary of the company’s use of debt given the uncertainty surrounding how long the economic pullback would last. The bear case against the stock, in our view, is overblown.
In recent years, Post has transformed itself into a higher-growth packaged food enterprise with a diversified portfolio that, taken as a whole, possesses superior growth and free cash flow characteristics vs. its peers. Despite this, shares sell at a meaningful discount to the peer group based on enterprise value/earnings before interest taxes depreciation and amortization, as well as our estimates of the company’s intrinsic value. As the economy returns to normal, Post’s food service line should rebound, and we believe investors will gain a greater appreciation of the company and its stock.”
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