In this article we’ll take a look at the Seth Klarman Stock Portfolio: Top 10 Stock Picks. Click to skip ahead to the billionaire’s top stock picks by clicking on Seth Klarman Stock Portfolio: Top 5 Stock Picks.
The Liberty SiriusXM Group (NASDAQ:LSXMA), Qorvo, Inc. (NASDAQ:QRVO), and Liberty Global plc (NASDAQ:LBTYK) are a few of the top stock picks of billionaire value investing icon Seth Klarman.
Seth Klarman is the co-founder of Baupost Group, which he founded in 1982 alongside four others and has managed ever since. Under his guidance, Baupost Group has delivered average annualized returns of greater than 20% since inception, a four-decade run of success that elevated Klarman to billionaire status with a net worth of about $1.5 billion.
Klarman is also the author of the value investing book Margin of Safety, which was published in 1991 in limited quantities and is extremely difficult to find today. Physical copies of the book sell for as much as $2,500 on Amazon. The book lays out Klarman’s approach to value investing, which includes conducting bottom up analysis of companies and only buying them at a discount (the margin of safety).
Like most value investors, Klarman invests in the majority of stocks for the long-term, which makes him a great money manager to follow and potentially mimic. Like fellow value investing legend Warren Buffett, Klarman also loves companies that have wide moats and/or valuable patents and IP rights, which give them an edge over the competition.
In a recent interview with Harvard Business School, Klarman noted that investors have had to significantly raise their game over the past few decades, as the market has become far more difficult to predict. Given the current market volatility, the various macroeconomic forces, and the rapid pace of technological change, he believes today is an extremely challenging period for investors, sentiments which were recently echoed by fellow billionaire investor Stanley Druckenmiller.
Unsurprisingly, there wasn’t a great deal of activity in Baupost’s 13F portfolio during Q3, though the fund did sell off 11 of its former holdings during the quarter, including one of its former top ten holdings. Just four new positions were added to the fund’s 13F portfolio, the value of which fell to $5.79 billion as of September 30 from $6.77 billion on June 30. It was the sixth straight quarter the fund’s 13F portfolio has dropped in value.
The bulk of Klarman’s investments remained in the communications and IT sectors, which accounted for about 72% of the fund’s 13F assets, down slightly from 75% at the end of Q2.
In this article, we’ll check out Seth Klarman’s top ten holdings and try to uncover why the billionaire money manager is bullish on them, most likely for the long haul.
Our Methodology
The following data is gathered from Baupost Group‘s latest 13F filing with the SEC. We follow hedge funds like Baupost Group because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q3 2022 reporting period.
Seth Klarman Stock Portfolio: Top 10 Stock Picks
10. Garrett Motion Inc. (NASDAQ:GTX)
Value of Baupost Group‘s 13F Position: $181 Million (GTXAP), $27.6 Million (GTX)
Number of Hedge Fund Shareholders: 30
Liberty Global plc (NASDAQ:LBTYK), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Qorvo, Inc. (NASDAQ:QRVO) are some of the top stock holdings in Seth Klarman’s 13F portfolio. Also grabbing a spot in the top ten is Garrett Motion Inc. (NASDAQ:GTX), which Klarman owns 25.5 million shares of after leaving the position unchanged during Q3. Several funds have extremely aggressive 13F exposure to GTX, including Mark T. Gallogly’s Centerbridge Partners (53.8%) and Stephen C. Freidheim’s Cyrus Capital Partners (37.4%).
Garrett Motion Inc. (NASDAQ:GTX) was spun off from Honeywell International Inc. (NYSE:HON) in 2017 and fully redeemed the Series B stock held by its former parent company earlier this year. The Switzerland-based company sells turbochargers for use in gas-powered and hybrid electric vehicles, which leaves it somewhat out in the cold when it comes to the longer-term trend towards fully electric vehicles, which don’t use turbochargers. In the medium term however, Garrett Motion has a solid growth runway ahead of it, and is investing in EV-related software technology that could eventually mitigate some of the longer-term downside risk in its core business.
Alluvial Capital discussed the pros and cons of Garrett Motion Inc. (NASDAQ:GTX)’s new preferred shares dividend policy in its Q3 2022 investor letter:
“Garrett Motion Inc. (NASDAQ:GTX) has elected to begin paying cash dividends on its convertible preferred shares. Doing so prevents dividends in arrears from further accruing and is a wise use of the company’s free cash flow. I believe the choice to initiate a cash dividend is a tacit admission by the company that the necessary conditions for converting the preferred shares will not be met soon. This is a mild short-term negative, as the complex capital structure will remain in place for now. On the other hand, I am thrilled for us to earn a 9% yield as the company uses its free cash flow to buy back cheap stock and wait for the automotive cycle to turn.”
9. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Value of Baupost Group‘s 13F Position: $184 Million
Number of Hedge Fund Shareholders: 29
Seth Klarman trimmed his stake in New Oriental Education & Technology Group Inc. (NYSE:EDU) by 4% during Q3, ending the quarter with 7.69 million shares. Hedge fund ownership of EDU fell for five straight quarters through the middle of 2022, declining by more than 50% during that time, but rebounded somewhat in Q3. Fang Zheng’s Keywise Capital Management and Dmitry Balyasny’s Balyasny Asset Management added EDU to their 13F portfolios during the September quarter.
New Oriental Education & Technology Group Inc. (NYSE:EDU) shares have crumbled by 85% since February 2021 after legislation was passed by the Chinese government that banned for-profit K-12 tutoring. The company has had dramatically pivot its business in the wake of those regulations, shifting to non-academic tutoring and on the growth of its overseas operations.
The results showed promise for New Oriental Education & Technology Group Inc. (NYSE:EDU) during its fiscal year 2023 Q1 results, as its revenue of $744.8 million beat estimates by more than 10%. While the year-over-year sales comps weren’t favorable, as revenue fell by 43.1% compared to a year earlier, the company nonetheless managed to grow its adjusted operating income by 28.3% to $97 million.
8. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Value of Baupost Group‘s 13F Position: $258 Million
Number of Hedge Fund Shareholders: 45
Seth Klarman raised his stake in Willis Towers Watson Public Limited Company (NASDAQ:WTW) by 39% during the third quarter, ending September with 1.29 million shares. Numerous other hedge funds have cut ties with the stock over the last year, as there’s been a 43% drop in the number of funds long WTW since Q3 2021. Leading quant funds Renaissance Technologies and Two Sigma Advisors both sold off their WTW holdings during Q3.
Willis Towers Watson Public Limited Company (NASDAQ:WTW) had solid organic growth of 6% during Q3 as revenue hit $2 billion, which was in-line with estimates. The insurance advisor delivered a slight beat on adjusted EPS, pulling in $2.20 per share compared to estimates of $2.13. Credit Suisse analyst Andrew Kligerman believes the company will continued to expand that metric at a double digit rate, predicting 22% and 19% adjusted EPS growth in 2023 and 2024 respectively. The analyst has an ‘Outperform’ rating and $288 price target on the stock.
Artisan Partners shared its thoughts on Willis Towers Watson Public Limited Company (NASDAQ:WTW) in the fund’s Q3 2022 investor letter:
“Willis Towers Watson Public Limited Company (NASDAQ:WTW) shares rose 2% in the quarter. This modest increase made it one of our best performers during a difficult quarter. Absent significant news, the business continues to benefit from a hard insurance market. Results are still lagging peers, but the management team seems to be making progress in closing the gap. In the meantime, the company is returning significant amounts of capital to shareholders. Over the past eight months, it has repurchased $4 billion in stock and reduced the share count by 15%. And there is more on the way. This is a good business in a fantastic industry trading at 12X normalized earnings. We believe it is worth much more.”
7. Fiserv, Inc. (NASDAQ:FISV)
Value of Baupost Group‘s 13F Position: $331 Million
Number of Hedge Fund Shareholders: 60
Klarman’s stake in Fiserv, Inc. (NASDAQ:FISV) was left untouched during Q3, as Baupost Group maintained its position of 3.53 million FISV shares. The stock has hit a 3-year low in terms of hedge fund ownership, with a 38% drop in the number of funds long FISV since the end of 2020. Jeffrey Ubben’s ValueAct Capital owns 14.6 million Fiserv shares as of September 30, giving the activist fund 23% 13F exposure to the stock.
Fiserv, Inc. (NASDAQ:FISV) is a major player in the financial transactions space, processing more than 15.7 billion transactions annually from about 1.4 billion customer accounts. The company grew revenue by 10% during the first half of this year, to $8.6 billion, while adjusted EPS grew by 17% to $2.96. Its shares currently trade at a forward P/E of just 15.9x, which is quite a bit cheaper than the NASDAQ.
The aforementioned ValueAct Capital was awarded a seat on the company’s board earlier this year and has stated that Clover alone could be worth close to half the company’s enterprise value.
Artisan Partners also discussed Fiserv, Inc. (NASDAQ:FISV) in its Q3 2022 investor letter, and echoed ValueAct’s point that the market doesn’t seem to be giving as much credit as it should be to Fiserv subsidiary Clover:
“While our list of potential candidates is filling up, we are being patient. We added two new positions in Q3: Fiserv, Inc. (NASDAQ:FISV) and Heineken. Fiserv is a provider of financial technology, core processing and payment processing services to financial institutions and merchants. The company reports three segments: acceptance (merchant acquiring), payments & networks (issuer processing and debit network), and fintech (core bank processing). Fiserv has strong market positions and scale across these businesses, but competitive intensity varies. In the acceptance segment, Fiserv owns Clover, a high-growth point-of-sale (POS) system forsmall and medium businesses, with similar annualized gross payment volume to Block’s Square. However, Fiserv is receiving little credit for Clover. The market is overly concerned about the competitive nature of merchant acquiring and legacy processors losing market share to new entrants. We believe Fiserv’s business is more resilient and will continue to grow in the medium term driven by its scale and Clover. Moreover, fintech and payments are good businesses that are undervalued by the market. Both businesses are in highly consolidated industries where scale advantages are critical, and revenues are sticky due to high switching costs. A high share of recurring revenue and profit, an attractive margin profile and high free cash flow conversion are characteristics that should provide downside protection, in our view. We started our position with shares selling for about 11X normalized operating profit. That is a below-average multiple for an above-average business.”
6. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Value of Baupost Group‘s 13F Position: $334 Million
Number of Hedge Fund Shareholders: 76
Warner Bros. Discovery, Inc. (NASDAQ:WBD) closes out the first half of Seth Klarman’s top 10 stock picks. He held 18 million shares of the company at the end of Q2 and raised his position by another 62% to 29 million shares during Q3. WBD went public in the second quarter after WarnerMedia was spun off by AT&T Inc. (NYSE:T) and subsequently merged with Discovery Inc.
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is in the midst of a significant restructuring plan that includes the company merging its streaming services Discovery and HBO Max into a single entity. It’s also looking to slash billions of dollars in costs from its balance sheet, which has resulted in the company axing both employees and content. The company has an impressive stable of content lined up for 2023, including multiple DC movies and the highly-anticipated videogame Hogwarts Legacy.
Greenlight Capital shared the reasons why it unloaded its shares in Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q3 2022 investor letter:
“Finally, we sold unsuccessful investments in PLBY and Warner Bros. Discovery, Inc. (NASDAQ:WBD). We thought both companies were going through substantial corporate transformations. PLBY failed to execute on its strategy and we exited with a 50% loss on our investment. We sold WBD as it faces a more challenging path to executing its integration plan than we expected. It also has a sizable amount of debt. We are trying to avoid levered equities in the current economic environment. We lost approximately 40% on WBD in half a year. Both positions were small.”
Qorvo, Inc. (NASDAQ:QRVO), Liberty Global plc (NASDAQ:LBTYK), and The Liberty SiriusXM Group (NASDAQ:LSXMA) are some of the top stocks in Seth Klarman’s portfolio. See where they rank by clicking the link below.
Click to continue reading and see the Seth Klarman Stock Portfolio: Top 5 Stock Picks.
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Disclosure: None. Seth Klarman Stock Portfolio: Top 10 Stock Picks is originally published at Insider Monkey.
