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10 Cheap Value Stocks To Buy According To Seth Klarman

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·10 min read
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In this article, we discuss the cheap value stocks to buy according to Seth Klarman. You can skip our detailed analysis of Klarman's 13F portfolio and go directly to read the 5 Cheap Value Stocks To Buy According To Seth Klarman.

Seth Klarman is an American billionaire investor, author, and hedge fund manager. Currently, he is serving as the chief executive officer and portfolio manager of the Boston-based investment management firm, Baupost Group. As of October 7, Klarman’s net worth stands at $1.5 billion, as reported by Forbes.

Klarman’s Investment Philosophy

Seth Klarman is mainly known for investing in value stocks. Before investing in a particular stock, he focuses on the risks attached to it. He picks the stocks that are great bargains. His bottom-up strategy of value investing is to identify the undervalued stocks, which are expected to outperform the market. His 1991 publication, “Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor,” deeply analyzes his investment philosophy.

Due to these investment strategies, Klarman’s Baupost Group managed to have an annual average return of 20% since its inception in 1983.

As of Q2 2021, Baupost Group invests heavily in technology, finance, and services. The hedge fund’s 13F portfolio has over $12.3 billion in managed securities and the portfolio’s value grew by 0.98% when compared with the first quarter. Some of the notable stocks in Baupost’s 13F portfolio include Facebook, Inc. (NASDAQ:FB), Alphabet Inc. (NASDAQ:GOOG), Liberty Global plc (NASDAQ:LBTYA), Intel Corporation (NASDAQ:INTC), and eBay Inc. (NASDAQ:EBAY).

In this list, however, we focus on the cheap value stocks to buy according to Seth Klarman.

Our Methodology:

Let's analyze our list of the cheap value stocks to buy according to Seth Klarman. We took into account Seth Klarman's Baupost Group's 13F portfolio as of Q2 2021. Along with this, the P/E ratios of the companies are also mentioned.

10 Cheap Value Stocks To Buy According To Seth Klarman
10 Cheap Value Stocks To Buy According To Seth Klarman

Seth Klarman of Baupost Group

Why pay attention to hedge fund sentiment while choosing stocks?

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10 Cheap Value Stocks To Buy According To Seth Klarman

9. Garrett Motion Inc. (NASDAQ:GTX)

Baupost Group’s Stake Value: $28,529,000

Percent of Baupost Group’s 13F Portfolio: 0.23%

Number of Hedge Fund Holders: 17

P/E Ratio: 2.44

Garrett Motion Inc. (NASDAQ:GTX) ranks ninth on our list of the cheap value stocks to buy according to Seth Klarman. It is an American company that specializes in the development of turbochargers and related forced induction systems for vehicles, such as small passenger cars and trucks.

In Q2 2021, Baupost Group started building its position in Garrett Motion Inc. (NASDAQ:GTX) with over 3.5 million shares, valued at $28.5 million. The company accounts for 0.23% of the hedge fund’s 13F portfolio.

This July, BWS Financial initiated its coverage on Garrett Motion Inc. (NASDAQ:GTX) with a ‘Buy’ rating and a $15 price target. The firm’s analyst Hamed Khorsand noted that the company will benefit from its growth in gasoline turbocharges, which would boost overall company sales over the next three years.

As of Q2 2021, the number of hedge funds having stakes in Garrett Motion Inc. (NASDAQ:GTX) grew to 17, from 2 in the previous quarter. The total worth of these stakes is $262 million. Cyrus Capital Partners is the company’s leading shareholder, with over 10.2 million shares.

Like Facebook, Inc. (NASDAQ:FB), Alphabet Inc. (NASDAQ:GOOG), Liberty Global plc (NASDAQ:LBTYA), Intel Corporation (NASDAQ:INTC), and eBay Inc. (NASDAQ:EBAY), Garrett Motion Inc. (NASDAQ:GTX) is gaining investors’ attention in 2021.

Alluvial Capital Management mentioned Garrett Motion Inc. (NASDAQ:GTX) in its second-quarter 2021 investor letter. Here is what the firm has to say:

“We owe a large portion of this quarter’s gains to a new investment in Garrett Motion Inc. We participated in the company’s post-bankruptcy recapitalization through our purchase of Garrett Motion preferred shares.

Garrett Motion is a manufacturer of automotive turbochargers that was spun off from Honeywell in 2018. Honeywell gave Garrett Motion a parting gift of hundreds of millions in asbestos-related liabilities, which ultimately proved unmanageable and led to the company’s bankruptcy in late 2020. The resolution of the bankruptcy process allowed Garrett to shed many of its liabilities and to recapitalize the company with new debt and preferred stock. Shareholders were granted the right to subscribe for new Series A convertible preferred stock.

The rights offering bore all the classic signs of an attractive “special situation” investment. I believed the offering price of the preferred shares, $5.25, was significantly below their market value based on any reasonable estimate of Garrett Motion’s post-emergence performance. What really got me excited about these preferreds was the behavior of the large hedge funds backstopping the rights offering. These funds had the right to acquire all the preferred shares not purchased by holders of Garrett Motion common stock, and the subscription process was designed to be quite difficult for smaller, less sophisticated shareholders. Vague, confusing paperwork; attorney attestations; proof of financial status—clearly, these backstopping funds didn’t want anyone else to get their hands on these preferreds. And if these large, sophisticated funds with their deep involvement in the bankruptcy proceedings thought these preferreds were so great, well…that was not enough for me to say “I’m all in!”, but it did suggest taking a much closer look.

We subscribed for a healthy number of Garrett Motion preferreds, and our investment has been a good one to date. The preferreds trade nearly 50% over our subscription price. Nice to see, but I think the best is yet to come. Following the bankruptcy, Garrett Motion is a small company with a confusing capital structure (term debt, Series A preferreds, Series B preferreds, common stock), no analyst coverage, and no guidance from management. On top of that, Garrett’s business model faces long-term challenges as the internal combustion engine gives way to electric. It’s no wonder the market values Garrett at distressed levels. But Garrett will generate hundreds upon hundreds of millions in free cash flow each year for the next several years, which will allow the company to deleverage and simplify its balance sheet, invest in next-generation products, and reward shareholders. I fully expect the preferreds we hold to be valued at 2-3x the current price in just a few years’ time.”

8. Atara Biotherapeutics, Inc. (NASDAQ:ATRA)

Baupost Group’s Stake Value: $131,825,000

Percent of Baupost Group’s 13F Portfolio: 1.06%

Number of Hedge Fund Holders: 20

P/E Ratio: 3.63

Atara Biotherapeutics, Inc. (NASDAQ:ATRA) is an American biotech and immunotherapy company that develops transformative therapies for patients suffering from serious illnesses, such as cancers and autoimmune diseases.

As of Q2 2021, Baupost Group owns over 8.4 million shares in Atara Biotherapeutics, Inc. (NASDAQ:ATRA), valued at $131.8 million. The hedge fund did not make any changes to its position in the company during the quarter and the company accounts for 1.06% of the fund’s 13F portfolio.

As of Q2 2021, 20 hedge funds tracked by Insider Monkey have positions in Atara Biotherapeutics, Inc. (NASDAQ:ATRA), same as in the last quarter. These stakes are valued at $458.6 million, compared with their value of $434.2 million in the last quarter.

Like Facebook, Inc. (NASDAQ:FB), Alphabet Inc. (NASDAQ:GOOG), Liberty Global plc (NASDAQ:LBTYA), Intel Corporation (NASDAQ:INTC), and eBay Inc. (NASDAQ:EBAY), Atara Biotherapeutics, Inc. (NASDAQ:ATRA) is also gaining investors’ attention in 2021.

7. Shaw Communications Inc. (NYSE:SJR)

Baupost Group’s Stake Value: $218,125,000

Percent of Baupost Group’s 13F Portfolio: 1.76%

Number of Hedge Fund Holders: 23

P/E Ratio: 20.42

Shaw Communications Inc. (NYSE:SJR) is a Canadian telecommunications company that provides services related to the internet, telephone, television, and mobile.

Shaw Communications Inc. (NYSE:SJR) is one of the newest acquisitions of Baupost Group as the hedge fund started building its position in the company in Q2 2021 with over 7.5 million shares, valued at $218.1 million.

In September, Morgan Stanley lifted its price target on Shaw Communications Inc. (NYSE:SJR) to C$40.50, while keeping a ‘Buy’ rating on the shares. In 2021, the stock delivered a 64.8% return to shareholders.

As of Q2 2021, 23 hedge funds tracked by Insider Monkey have positions in Shaw Communications Inc. (NYSE:SJR), up from 21 in the previous quarter. These stakes are valued at $697.6 million.

Like Facebook, Inc. (NASDAQ:FB), Alphabet Inc. (NASDAQ:GOOG), Liberty Global plc (NASDAQ:LBTYA), Intel Corporation (NASDAQ:INTC), and eBay Inc. (NASDAQ:EBAY), Shaw Communications Inc. (NYSE:SJR) is one of the notable stocks to buy according to Seth Klarman.

6. Veritiv Corporation (NYSE:VRTV)

Baupost Group’s Stake Value: $218,928,000

Percent of Baupost Group’s 13F Portfolio: 1.77%

Number of Hedge Fund Holders: 14

P/E Ratio: 16.11

Veritiv Corporation (NYSE:VRTV) ranks sixth on our list of the cheap value stocks to buy according to Seth Klarman. It is an American company that provides full services of packaging, publishing, and hygiene products. The company has over 125 distribution units located in the U.S., Canada, and Mexico.

As of Q2 2021, Baupost Group did not make any changes to its position in Veritiv Corporation (NYSE:VRTV). The hedge fund owns over 3.5 million shares in the company, valued at $218.9 million. The company represents 1.77% of the hedge fund’s 13F portfolio.

As of Q2 2021, 14 hedge funds tracked by Insider Monkey have positions in Veritiv Corporation (NYSE:VRTV), up from 13 in the previous quarter. The total value of these stakes is $254.9 million.

5. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)

Baupost Group’s Stake Value: $239,015,000

Percent of Baupost Group’s 13F Portfolio: 1.93%

Number of Hedge Fund Holders: 49

P/E Ratio: 26.82

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is an American multinational financial technology company that provides software as a service to the finance industry. The company stands sixth on our list of the cheap value stocks to buy according to Seth Klarman.

As of Q2 2021, Baupost Group owns over 3.3 million shares in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), valued at $239 million. The company represents 1.93% of the hedge fund’s 13F portfolio. This August, Truist analyst Michael Young appreciated the company’s strong earnings beat in Q2 while highlighting the company’s solid outlook for the rest of the year. The firm lifted its price target on SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) to $85 from $80.

As of Q2 2021, 49 hedge funds tracked by Insider Monkey have positions in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), compared with 54 in the previous quarter. The total value of these stakes is $2.56 billion. Select Equity Group is the company’s leading shareholder, with over 9.6 million shares.

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Disclosure. None. 10 Cheap Value Stocks To Buy According To Seth Klarman is originally published on Insider Monkey.