The fund owned 15 million shares of Genworth Financial Inc (NYSE:GNW), which offers life insurance and other insurance products. At a market capitalization of $3.6 billion, Genworth trades at 10 times trailing earnings. While revenue was about flat in the third quarter compared to the same period in 2011, the sell-side expects significant earnings growth in the coming years: the forward P/E is 6 and the PEG ratio is 0.7. Billionaire Eddie Lampert’s ESL Investments had just over 12 million shares in its own 13F portfolio (check out Lampert’s stock picks). Even though we’re skeptical of the growth expectations, we think that the trailing earnings multiple is low enough that the company is worth a look.
Baupost initiated a position of 4.1 million shares in Rovi Corporation (NASDAQ:ROVI), a provider of interactive program guides and other digital entertainment technology products. The stock is down 36% in the last year as the business has struggled (sales were down 7% last quarter versus a year earlier). Analysts insist that the company is still a good value at the current price, which is only 8 times consensus earnings for 2013 and implies a PEG ratio of 0.8. Glenview Capital, which is managed by former Omega Advisors trader Larry Robbins, more than doubled its own stake in the company last quarter (find more stocks Glenview was buying).
Oracle Corporation (NASDAQ:ORCL) was another Klarman pick which analysts believe has high enough growth rates to justify the current valuation. Oracle carries trailing and forward P/E multiples of 16 and 11, respectively. In its most recent fiscal quarter- which ended in November, and was the second quarter of the company’s fiscal year- net income was up strongly from the same period in the previous fiscal year, though revenue only rose 3% and as a result we’re not sure how sustainable Oracle’s earnings growth will actually be. We can compare Oracle to Microsoft Corporation (NASDAQ:MSFT), which has a forward P/E of only 8 but has two important notes which reduce the importance of that figure. First, earnings will likely see a temporary bump as new versions of Windows and Office are released (of course, by the same token we’d somewhat discount recent declines in revenue and earnings as customers await the new versions of these products). Second, it is unclear that Windows 8 will meet expectations; certainly some customers will buy the new version whether they want to or not, but Microsoft’s stock price will still be sensitive to its reception. Both Oracle and Microsoft made our list of hedge funds’ favorite tech stocks. Microsoft is dependent enough on product reception that we’d avoid it for now, and we think that we’d need to wait on Oracle as well.
Klarman and his team sold some of their shares of News Corp (NASDAQ:NWSA) but it remained one of the five largest positions in Baupost’s portfolio. News Corp is currently planning to split into two separate businesses, which has gotten it a lot of attention in the markets. Breakups and spinout opportunities can sometimes result in creating substantial shareholder value, as management of the new companies can better focus on improving their core operations. Read more about spinouts. We think it’s watch list material, but News Corp looks too expensive in terms of its actual financial results to buy right now.
