In this article, we present the list of the top 12 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 Value Investor Seth Klarman is Selling these 5 Stocks.
Seth Klarman, a multibillionaire investor, author, and philanthropist, created Baupost Group in 1982, and it has since developed into one of the world’s biggest and most prosperous hedge funds. Boston, Massachusetts, serves as the corporate headquarters of the Baupost Group. Klarman wrote a phenomenally popular book on value investing titled “Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.” In order to invest for the long term, Klarman thinks it is wise to purchase assets that are currently trading below their intrinsic market worth. The billionaire, known as the “Oracle of Boston,” has a penchant for identifying stocks that are trading at a discount and has been compared to Warren Buffett, the “Oracle of Omaha,” over the years due to his investment approach. According to Forbes, Klarman has a personal net worth of $1.5 billion.
As of June 30, Klarman’s fund managed a 13F portfolio with holdings worth $6.767 billion and around $30 billion in total assets. The fund has a top 10 holdings concentration of 68.05%. With 48.419 million shares, Liberty Global plc Class C is the largest investment of Baupost Group. During the second quarter of 2022, Seth Klarman’s Baupost executed a portfolio rebalance, with the investment hedge fund selling out 6 positions, reducing 23 investments and adding 3 new assets, and boosting exposure to 4 existing investments.
Klarman’s fund, which has averaged greater than 20% returns annually since its founding in 1983, had a somewhat disappointing last few years. From mid-May 2019 to mid-May 2022, investors who followed the company’s 13F filings would have experienced annualized total returns of -2.1%. For comparison, over the same time frame, the S&P 500 ETF (SPY) achieved annualized total gains of 16.1%.
Our Methodology
For this study, we used Seth Klarman’s Baupost Group Q2 2022 portfolio. We picked the stocks that Klarman’s fund entirely exited or slashed its positions in for the three-month period ending June 30. For each stock, we have mentioned percentage of decline in Klarman’s stake in the second quarter.
12. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Baupost Group’s Stake Value: $182.974 million
Percentage of Baupost Group’s 13F Portfolio: 2.7%
Number of Hedge Fund Holders as of Q1 2022: 49
Percentage Decline in Stake: 25%
The list starts with Willis Towers Watson Public Limited Company (NASDAQ:WTW). The company was founded in 1828 and is based in London, the United Kingdom. It operates as an advisory, broking, and solutions company worldwide. Willis Towers Watson Public Limited Company (NASDAQ:WTW) might be vulnerable to the recession. It relies to a great extent on clients’ organizations having a sizeable headcount. The second leg of productivity declines at WTW could be caused by dropping client headcounts after the previous leg was caused by personnel attrition.
Klarman sold 0.301 million shares of WTW during Q2.
11. Dropbox, Inc. (NASDAQ:DBX)
Baupost Group’s Stake Value: $164.140 million
Percentage of Baupost Group’s 13F Portfolio: 2.42%
Number of Hedge Fund Holders as of Q1 2022: 44
Percentage Decline in Stake: 27%
Dropbox, Inc. (NASDAQ:DBX) was incorporated in 2007 and is headquartered in San Francisco, California. It provides a content collaboration platform worldwide.
Following the release of Q2 earnings, shares of Dropbox, Inc. (NASDAQ:DBX) fell slightly as top-line revenue growth slowed to an 8% year-over-year increase. Dropbox, Inc. (NASDAQ:DBX) outperformed Wall Street estimates in spite of the growth slowdown. Unfavorable FX moves partially hindered growth.
Klarman’s Baupost Group sold off 27% of its stake in Dropbox, Inc. (NASDAQ:DBX) during Q2, with the fund still holding 7.8 million shares, comprising 2.42% of its portfolio, as of June 30.
Here is what RGA Investment Advisors has to say about Dropbox, Inc. (NASDAQ:DBX) in its Q4 2021 investor letter:
“Dropbox really let us down this quarter, not because they did anything wrong, but because during our entire tenure holding this stock, it outperformed in periods where long duration assets (aka higher growth) sold off. This time it did not. Despite people asserting this market bifurcation is about selling growth and buying value, Dropbox shares suffered one of their worst stock market quarters in recent years. It’s hard to identify a specific reason, though one story out there is how some investors thought the company could raise the bar on its 30% targeted operating margin upon achieving those levels. Along with the company’s earnings report, instead of raising the bar, they explained how there is more room to drive margin, but in the mean-time the preference at the company is for investing the potential excesses to drive further growth.
This year, the company will have repurchased nearly 9% of its diluted shares outstanding (perhaps more given the Q4 route in shares) and will have delivered a free cash flow yield upwards of 7.5% on its year-end stock price, while growing upwards of 12%. This is a potent recipe for outstanding returns, yet in a market that’s theoretically seeking cash flow, the stock was punished. We think this is one of the most nonsensical moves of them all and find Dropbox to be an especially compelling opportunity heading into 2022. The top line is certainly growing, as the company continues to withstand competition from Microsoft, Google and Box. Plus management continues to make smart tuck-in acquisition, showing what may emerge as a scalable, repeatable recipe for deepening their relationship with existing customers, thus driving down churn and setting the stage for prolonged ARPU growth. This potential strategy started with HelloSign, and is further validated with the acquisition of DocSend…” (Click here to see the full text)
10. ironSource Ltd. (NYSE:IS)
Baupost Group’s Stake Value: $13.934 million
Percentage of Baupost Group’s 13F Portfolio: 0.2%
Number of Hedge Fund Holders as of Q1 2022: 36
Percentage Decline in Stake: 27%
Seth Klarman’s Baupost Group sold off 27% of its stake in ironSource Ltd. (NYSE:IS) during Q2.
ironSource Ltd. (NYSE:IS) was founded in 2010 and is headquartered in Tel Aviv-Yafo, Israel. It operates a business platform for app developers and telecom operators in Israel and internationally. In order to improve the gaming platform’s advertising technology, which has suffered as a result of recent data-privacy restrictions by Apple Inc., Unity Software Inc. (NYSE:U) has agreed to acquire ironSource Ltd. (NYSE:IS), in an all-stock deal valued at nearly $4.4 billion.
Here is what Argosy Investors has to say about ironSource Ltd. (NYSE:IS) in its Q1 2022 investor letter:
“I purchased IronSource early in the quarter and have seen IS decline in value nearly 32% through the end of the quarter, and further after the quarter. IronSource is a platform that helps game publishers maximize the financial success of their games and earns a cut of the revenues generated using its technology. They have grown extremely quickly in recent years, as gaming has become an increasingly popular outlet for free time. They grew 46% last quarter to over $150 million in quarterly revenue, at an operating margin of 18%. They expect to generate $800 million in revenue this year, and likely $0.15 per share of free cash flow in 2022, with the potential for $0.25 a few years from now. I believe that IS has a very profitable business model with the potential for a long runway of growth. At the same time, I could have chosen a better purchase price to make the investment, and that has become clear quite quickly. At current prices below $4 per share, returns from here can be attractive over the course of a few years.”
09. DigitalBridge Group, Inc. (NYSE:DBRG)
Baupost Group’s Stake Value: $64.215 million
Percentage of Baupost Group’s 13F Portfolio: 0.94%
Number of Hedge Fund Holders as of Q1 2022: 27
Percentage Decline in Stake: 29%
DigitalBridge Group, Inc. (NYSE:DBRG) was founded in 2009 and is headquartered in Boca Raton, Florida. It is an infrastructure investment firm. It specializes in investing and operating businesses across the digital ecosystem. DigitalBridge Group, Inc. (NYSE:DBRG) is a REIT firm that owns a sizable portfolio of 23 companies in the digital ecosystem as well as a sizable amount of next-generation infrastructure. Following the Covid-19 pandemic’s dynamic swings, DBRG turned around its deteriorating performance and is now heading in the direction of remarkably impressive long-term growth. The company has shown exceptional progress in its financial performance since 2020, with rising sales translating into increasing EPS for shareholders. The stock, however, is in the doldrums losing 20.84% value in the past six months and 29.58% year to date.
Klarman unloaded 29% of his stake in DigitalBridge Group, Inc. (NYSE:DBRG) during the second quarter, leaving his fund with 13.158 million shares valued at $64.215 million on June 30.
08. Meta Platforms, Inc. (NASDAQ:META)
Baupost Group’s Stake Value: $111.077 million
Percentage of Baupost Group’s 13F Portfolio: 1.64%
Number of Hedge Fund Holders as of Q1 2022: 200
Percentage Decline in Stake: 29%
Klarman sold 29% of his stake in Meta Platforms in the second quarter. His fund still owns a hefty stake of $111 million in the company. Meta stock has lost more than half of its value year to date as investors concerns over slowing growth increase.
07. Alphabet Inc. (NASDAQ:GOOG)
Baupost Group’s Stake Value: $369.272 million
Percentage of Baupost Group’s 13F Portfolio: 5.45%
Number of Hedge Fund Holders as of Q1 2022: 365
Percentage Decline in Stake: 31%
Seth Klarman’s Baupost Group reduced its holding in Alphabet Inc. (NASDAQ:GOOG) by 31% in Q2 selling 1.501 million shares, with the fund still holding 0.169 million shares.
In terms of annual operating cash flow, Alphabet Inc. (NASDAQ:GOOG) is just shy of the $100 billion level, and its massive cash position, including marketable securities, stands at $125 billion. Alphabet Inc. (NASDAQ:GOOG) has the strongest balance sheet among its competitors and generates operating cash flow levels comparable to those of Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).
On August 3, Ivan Feinseth, an analyst with Tigress Financial, increased the company’s price target for Alphabet Inc. (NASDAQ:GOOG) from $183 to $186 and maintained a Strong Buy rating on the stock in light of his belief that the company’s recently released Q2 results demonstrate the resilience of its core businesses in Cloud and Search.
06. Intel Corporation (NASDAQ:INTC)
Baupost Group’s Stake Value: $326.381 million
Percentage of Baupost Group’s 13F Portfolio: 4.82%
Number of Hedge Fund Holders as of Q1 2022: 76
Percentage Decline in Stake: 48%
Intel Corporation (NASDAQ:INTC) reported earnings for the second quarter of 2022 on July 28. The $0.29 per share figure for EPS missed market expectations by $0.41. The total revenue for the quarter was $15.3 billion, missing projections by $2.6 billion. The company also decreased its full-year revenue forecast from $74 billion to $68 billion.
On August 2, with a $30 price target, DZ Bank analyst Ingo Wermann lowered Intel from Hold to Sell. Hedge funds still seem bullish on Intel Corporation (NASDAQ:INTC) as the number of hedge funds holding Intel shares increased to 76 during Q1 2022 as compared to 72 in Q4 2021. Klarman, however, is not impressed and thus has dumped almost half of his stake in Intel Corporation (NASDAQ:INTC), leaving himself with 8.72 million shares with a value of $326.38 million as of June 30.
Here is what Baron Fund has to say about Intel Corporation (NASDAQ:INTC) in its Q1 2022 investor letter:
“Intel’s (NASDAQ:INTC) capital spending process is guided by a process they appropriately named “copy exactly.” This means that they attempt to “copy exactly” what they have already built and attempt to improve tried and true processes iteratively.”
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