We recently compiled a list of the 10 Cheap Value Stocks to Invest In, According To Seth Klarman. In this article, we are going to take a look at where Solventum Corporation (NYSE:SOLV) stands against the other cheap value stocks.
No value in crypto, but the focus should be on artificial intelligence. That’s the stance held by value investing magnet Seth Klarman. Like most conservative investors, the billionaire investor employs a value approach, looking for stocks and other assets that are trading below their intrinsic value and purchasing them at a discount.
The value investment strategy has been the catalyst behind Baupost Group, generating average returns of 20% over the last decade. The impressive run also stems from an aggressive investment strategy that tries to profit from emerging trends. That’s evident by Klarman’s moves around artificial intelligence in the hedge fund portfolio.
It’s no secret that Klarman has reiterated his admiration for artificial intelligence. Nevertheless, he insists that he is approaching the technology “with open eyes, with great humility, with a sense that profound change is upon us,” That’s evident given that Baupost Group does not hold significant stakes in some of the biggest plays around revolutionary technology.
READ ALSO: 10 Cheap Value Stocks to Invest in According to Warren Buffett and 14 Best 52-Week High Stocks To Buy According to Analysts.
While optimistic about AI, the Baupost Group CEO has clarified that he does not believe the burgeoning AI industry should be left to its own devices. Instead, he is one of the advocates calling on regulators and CEOs not to let “this get out of control.” If unchecked, the billionaire investor believes the technology could result in mass unemployment and, in the worst case scenario, “will sink the economy,”
While Klarman is bullish about artificial intelligence opportunities, he has touted opportunities in the credit and real estate sector. The Baupost Group CEO and portfolio manager insist opportunities are cropping up as interest rates decrease, resulting in improved consumer purchasing power.
“Real estate, in general, has been fruitful, not only in buying buildings but also indebted real estate-related companies, especially in Europe and Asia,” he said.
Even as Klarman remains bullish about the overall equity market outlook, he has not engaged in a buying spree as a value investor. Part of the cautious approach involves valuations in the equity markets getting out of hand. Most stocks are trading at premium valuations, with major indices near all-time highs.
In addition to valuation concerns, he has warned of increased government meddling in the markets more than ever. The billionaire investor has raised concerns about increased government intervention, making it difficult to tap into value investments in the market. “It’s almost like we’ve sort of outlawed failure — or at least financial failure,” he said. “That leads to a buildup of moral hazard. If nobody thinks anything can go wrong, they’ll take crazy risks because they’ll get bailed out.”
Nevertheless, Baupost Group’s investment portfolio is still rife with cheap value stocks to invest in. The adjustments that have come into play in recent quarters have affirmed the focus on investment plays trading below their intrinsic values. Recently, he has reduced his holdings in stocks with premium valuations and shifted his focus to lesser-known investments. His focus has been stocks trading at highly discounted valuations characterized by low price-to-earnings multiple.
Our Methodology
To compile the list of 10 affordable value stocks to invest in, according to Seth Klarman, we analyzed Baupost Group’s portfolio, concentrating on stocks with a Forward P/E ratio of less than 20, as of January 17. We then examined the stocks on why they stand out, according to Seth Klarman. Finally we ranked the stocks in ascending order based on Baupost Group’s holdings.
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 female doctor using the latest healthcare IT technology in her medical practice.
Solventum Corporation (NYSE:SOLV)
Number of Hedge Fund Holders: 48
Forward Price to Earnings Multiple: 12.76
Baupost Group’s Holdings: $126.89 Million
Solventum Corporation (NYSE:SOLV) is a healthcare company that develops, manufactures, and commercializes a portfolio of solutions to address critical customer and patient needs. After going down by about 9% in 2024, activist investor Trian Fund Management insists the stock is trading at a discount compared to its peers.
The activist investor fund founded by billionaire Nelson Peltz has weighed on Solventum Corporation’s (NYSE:SOLV) performance and started pushing for strategic changes it believes can help unlock hidden value. The firm wants the company to focus on reaccelerating organic growth and restoring margins while simplifying its business portfolio.
The push for strategic changes comes on Solventum Corporation (NYSE:SOLV) embarking on a three-phase strategy to reinvigorate growth prospects. Part of the strategy entails moving production lines from 67 factories to 27 Solventum plants. It also plans to trim its distribution facilities to 73 from 122 as it also reorganizes its supply chain and distribution network. The restructuring also comes against the backdrop of Solventum delivering solid third-quarter results on November 7, whereby sales increased by a modest 0.4% to $2.08 billion. Nevertheless, its earnings per share fell 42.9% to $1.64. Despite the significant earnings miss, the company raised its full-year guidance, projecting organic sales growth of between 0% and 1%, with earnings per share of between $6.50 and $6.65.
Overall SOLV ranks 7th on our list of the cheap value stocks to invest in according to Seth Klarman. While we acknowledge the potential of SOLV as an investment, our conviction lies in the belief that some 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 SOLV 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.