In this article, we present the list of the top 10 stocks billionaire Seth Klarman is selling off. You can skip our comprehensive analysis of Baupost Group’s history, investment philosophy, and hedge fund performance, and go directly to Top 5 Stocks Billionaire Seth Klarman is Selling Off.
Micron Technology, Inc. (NASDAQ:MU), eBay Inc (NASDAQ:EBAY), and PG&E Corporation (NYSE:PCG) were among the top stocks being sold off by billionaire money manager Seth Klarman during the fourth quarter of 2021.
The founder, CEO, and portfolio manager of Boston-based hedge fund Baupost Group, which manages more than $30 billion as of 2020, believes his value investing philosophy and flexible strategic deployment of capital are well suited to the market upheaval that’s been caused by the Covid-19 pandemic. Klarman has previously characterized such market volatility as a “value investor’s best friend”.
Despite his reputation as a classic value investor, Klarman takes a more new-age approach to the definition of value investing, describing it as having less to do with stocks trading at low multiples. Instead, he seeks out companies that appear to be underappreciated and mispriced by the market for any number of reasons. He believes good value stocks can even include some of the characteristics typically associated with growth stocks.
Klarman’s fund, which has averaged greater than 20% returns annually since its founding in 1983, had a somewhat disappointing 2020 in which it returned less than 5% while the broader hedge fund industry had one of its best years ever.
In 2021, Baupost Group poured $1.6 billion into private equity investments and made several large investments in real estate projects that were experiencing funding gaps due to pandemic-related obstacles. Real estate accounted for more than 10% of Baupost’s portfolio at the end of 2021.
In the final quarter of 2021, Klarman unloaded some or all of the shares from 20 of Baupost’s holdings as it prepares to seek out the new opportunities that 2022 will bring.
Seth Klarman of Baupost Group
Our Methodology
We follow hedge funds like Baupost Group because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns. In this article, we’ll look at the ten stocks Baupost sold the greatest amount of shares in during Q4 according to its 13F filing for the December 31, 2021 reporting period. All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q4 2021 reporting period.
Top 10 Stocks Billionaire Seth Klarman is Selling Off
10. Dropbox, Inc. (NASDAQ:DBX)
Net Amount of Shares Baupost Group Sold in Q4: 1.19 million
Number of Hedge Fund Holders: 44
The list kicks off with Dropbox, Inc. (NASDAQ:DBX), which Seth Klarman’s hedge fund sold a modest amount of shares of during Q4, 1.19 million in total to leave it with 8.10 million shares. Hedge fund ownership of Dropbox rose by 33% in 2021.
Dropbox, Inc. (NASDAQ:DBX) shares have fallen by 27% since November 4, pushing the stock into value territory despite its solid growth rate. Dropbox grew its revenue by 13% during the first three quarters of 2021 while generating $500 million in free cash flow, a more than 50% increase year-over-year. Dropbox currently sports a price/sales ratio of just 4.27x and a price/FCF ratio of 12.39x, both of which represent considerable all-time lows for the stock.
Mayar Capital, which initiated a stake in Dropbox, Inc. (NASDAQ:DBX) during Q3, had this to say about the company in its Q3 2021 investor letter:
“During the quarter we initiated a new position in the shares of Dropbox. Dropbox started out as a basic cloud storage provider but has developed into a valuable collaboration tool for its many users and has multiple levers for future growth.
Its free storage allowance tempts customers to use the service and the “procedural” switching costs (aka “pain in the back”) associated with moving cloud storage give Dropbox power to move users up the pricing ladder as their storage requirements grow.
Dropbox is more than a dumb drop box, however – since its founding in 2007 it has developed into a high value-add collaboration tool for an active user base, which is in the hundreds of millions. One could say that its large network of integrated apps and recent acquisitions have cemented its development from Dumbox to Dropbox. That only a small proportion of those users currently pay for the service, though growing, gives the company a wonderful runway for growth in the years to come…” (Click here to see the full text)
Like Micron Technology, Inc. (NASDAQ:MU), eBay Inc (NASDAQ:EBAY), and PG&E Corporation (NYSE:PCG), Dropbox was a notable stock that billionaire Seth Klarman was selling in Q4.
9. International Flavors & Fragrances Inc. (NYSE:IFF)
Net Amount of Shares Baupost Group Sold in Q4: 1.24 million
Number of Hedge Fund Holders: 40
Seth Klarman unloaded his entire stake in International Flavors & Fragrances Inc (NYSE:IFF) during Q4, selling off all 1.24 million shares his hedge fund held on September 30. That culminated in his selling of IFF that began in the previous quarter when he sold off 857,517 shares. Numerous other hedge funds have been doing the same in 2021, as hedge fund ownership of IFF was down 29% this year.
That hedge funds were selling during 2021 may not be a shock considering International Flavors & Fragrances Inc (NYSE:IFF) shares gained 38% last year. Nonetheless, it suggests much of the easy money has been made, with hedge fund managers now looking elsewhere for their next profitable positions.
Nonetheless, several analysts believe International Flavors & Fragrances Inc (NYSE:IFF) shares are still cheap relative to its peers given that its sales growth is keeping pace with them in addition to the company’s integration of N&B going smoothly, with $60 million in cost synergies realized during 2021.
8. Intel Corporation (NASDAQ:INTC)
Net Amount of Shares Baupost Group Sold in Q4: 1.71 million
Number of Hedge Fund Holders: 72
Klarman’s Baupost Group sold off a modest 9% of its stake in Intel Corporation (NASDAQ:INTC) during Q4, with the fund still holding 18.04 million shares on December 31. Hedge fund ownership of the chipmaker fell by 13% in 2021.
With its eyes firmly on the potential $1 trillion semiconductor market come 2030, Intel Corporation (NASDAQ:INTC) has laid out an ambitious framework to achieve double-digit revenue growth by 2026 in addition to gross margin expansion of as much as seven percentage points by 2025. The company is confident it can achieve this through a focus on innovation, greater collaboration with outside partners, and strong cost discipline.
Not all investors are willing to wait it out with Intel, however. O’Keefe Stevens Advisory, Inc., which sold off its stake in Intel Corporation (NASDAQ:INTC) during Q4, discussed its evolving views surrounding the company in its Q4 2021 investor letter:
“Intel Corp (INTC) – We originally purchased Intel in August 2020 due to the substantial FCF generated and $10B+ yearly in R&D and Capex invested over the past several years. The technology lead it once had was gone as competitors such as TSMC, AMD, and others in the CPU and Data Center group surpassed Intel. Even though Intel had years of business underperformance because of delays in releasing new products, we believed the amount of capital spent at the company would allow them to catch up and reclaim market share. We knew this type of turnaround, given the company’s size, was not going to be quick or easy. However, we believed the price offered more than compensated us for the risk of failing once again.
In January, Intel Corporation (NASDAQ:INTC) announced Pat Gelsinger as the new CEO. We were happy with the hire as Pat was Intels original CTO, helping Intel become the dominant player in the industry it once was. We became increasingly worried that Pat was not the right guy in the months and quarters following the announcement. Mr. Gelsinger appears to be viewing the world through rosecolored glasses (though we do recognize the CEO is the heart and soul of the organization, so we understand to a certain extent why he talked the way he did). Intel’s FCF gave us some comfort that it could afford to continue investing in new products while repurchasing shares or making acquisitions.
In the most recent quarter, the company announced an ambitious spending plan. In 2022, Intel expects to spend between $25-$28B in capital expenditures plus another $15B in R&D, with the potential to spend more if an opportunity presents itself! The FCF cushion we once had is likely gone for the next few years as Intel bets the farm to return to a market-leading position. While the future for Semiconductors is very bright, and end markets such as Data Centers and Autonomous vehicles are growing rapidly, we worry about the potential ramifications should Intel Corporation (NASDAQ:INTC)’s investments prove to be ill-fated like the past decade. Understanding what Intel Corporation (NASDAQ:INTC) will earn next year is a challenge in and of itself. Thinking about what it could be in 3-5 years is likely nothing more than a guess. With our downside protection gone and uncertainty surrounding the business’s future, we decided to sell the position. We are long-term-minded and are willing to ride out short-term pain. However, when the facts change, we must update our prior views.”
7. Vertical Aerospace Ltd. (NYSE:EVTL)
Net Amount of Shares Baupost Group Sold in Q4: 2.1 million
Number of Hedge Fund Holders: 18
Klarman sold off his position in Vertical Aerospace Ltd (NYSE:EVTL) during Q4, which was formerly a holding in the special purpose acquisition company (SPAC) Broadstone Acquisition Corp. Verticle Aerospace went public in December after merging with Broadstone. More than half of Broadstone’s former hedge fund shareholders sold off their stakes during Q4.
Vertical Aerospace Ltd (NYSE:EVTL) is in the process of developing an electric vertical takeoff and landing (eVTOL) aircraft and has taken 1,350 conditional preorders for it. While the British company is in an exciting field with great long-term potential, the current reality is that it’s a $1.55 billion company that doesn’t yet have a salable product, and which has a small balance sheet. There’s also a great deal of competition in the space.
Those factors likely lead the majority of hedge funds to dump Vertical Aerospace Ltd (NYSE:EVTL) as soon as the merger was completed, with their money being put into more projectable investments.
6. Horizon Acquisition Corporation II (NYSE:HZON)
Net Amount of Shares Baupost Group Sold in Q4: 3.50 million
Number of Hedge Fund Shareholders: 25
Horizon Acquisition II Corp (NYSE:HZON) is another SPAC that is in the process of seeking out merger or acquisition opportunities. Unlike Broadstone, Klarman dumped his 3.5-million share stake in HZON before the company found such a merger. Hedge fund ownership of the stock has remained steady since it went public in Q4 2020 however, most hedge funds appear content to wait out the process.
Horizon Acquisition II Corp (NYSE:HZON) was in discussions to acquire Swiss sportsbook data company Sportradar back in March 2021, but nothing materialized, though the two sides have reportedly continued to discuss a deal in the months since. Other SPACs have successfully taken sports betting operations public over the last three years, including DraftKings Inc. (NASDAQ:DKNG) and Golden Nugget Online Gaming, Inc. (NASDAQ:GNOG).
While Horizon Acquisition II Corp (NYSE:HZON) continues to pursue a deal, Klarman will look to invest his dollars elsewhere, as he did by selling shares of Micron Technology, Inc. (NASDAQ:MU), eBay Inc (NASDAQ:EBAY), and PG&E Corporation (NYSE:PCG) during Q4, which will be discussed in the second half of this article.
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Disclosure: None. Top 10 Stocks Billionaire Seth Klarman is Selling Off is originally published at Insider Monkey.
