15 Stocks Billionaire Seth Klarman Likes the Most Now
In this article, we looked at what billionaire Seth Klarman thinks about the stock market outlook, his investing principles, and what he recommends to investors. We also reviewed year to date performance of 15 stocks billionaire Seth Klarman likes the most now. You can skip our detailed discussion about Seth Klarman and jump directly to 5 Stocks Billionaire Seth Klarman Likes the Most Now.
When the S&P 500 was trading at a 52-week high two months ago, billionaire Seth Klarman, a renowned value investor and founder of Baupost Group, predicted that the markets were still in a bubble caused by ultra-low interest rates during pandemic years. His prediction is turning out to be true as the S&P 500 has plunged nearly 7% since Klarman presented a bearish outlook for the US stock market in an interview with Ted Seides of Capital Allocators. The robust uptrend of the US stock market has been halted by the Fed's hawkish stance, an increase in inflation, and lofty valuations.
"You had a bubble, it was really a credit bubble, that became an everything bubble. Super-low interest rates, at times zero rates, made capital easily available and incredibly cheap. That led to startup manias and SPACs and meme stocks and crypto, all kinds of speculative activity. I'm not convinced that we've even begun to sort out that bubble," the billionaire investor said in an interview with Capital Allocators.
After reaching a 2023 high of 4500 points in July and surging 19%, the broader US stock market index fell back to 4200 points in the following two months as investor sentiment was harmed by the Fed's strategy of keeping rates higher for longer in order to keep inflation at 2%. According to the Fed's dot plot, there will be one more rate hike in 2023 and two fewer cuts in 2024, compared to expectations for no rate hikes in 2023 and four cuts in 2024. High interest rates already jolted the financial sector in early 2023, when several regional banks failed. The Fed's strategy of keeping rates higher for a longer time would exacerbate difficulties for the financial sector. Higher rates for a longer time will support deposit flight to market funds with higher yields. High rates also deter the growth potential of the technology and other growth sectors.
In another interview following the publication of his edited version of Benjamin Graham's and David Dodd's Security Analysis, widely regarded as the bible of value investing, Klarman advised retail and institutional investors to revisit Security Analysis. He explained in an interview that he edited the book to emphasize how crucial it is to abide by fundamental principles of investing in order to avoid volatility. He added that it is his duty to alert investors about the risks because speculative trading has gained significant traction in the last 15 years. He does, however, think that the largest endowments and pension funds might choose to ignore his advice.
“I don’t know how much of this will be read by institutional investors who may think they know it all.”
Seth Klarman's investment strategy and principles are worth considering because he grew his small $27 million fund into one of the world's largest hedge funds, earning a compound annual average return of 20% since inception. His hedge fund's stellar performance earned him the title "the Oracle of Boston." In fact, Warren Buffett of Berkshire Hathaway once said that one book he reads almost daily is Seth Klarman's "Margin of Safety." Klarman’s hedge fund mainly invests in stocks, distressed debt, and foreign securities. The renowned investor typically looks for undervalued securities and then he waits for the price to increase with a long-term horizon.
According to the Baupost Group's second quarter 13F Filings, billionaire Seth Klarman's $5.6 billion stock portfolio underwent a number of changes. His fund added four new positions while increasing or decreasing the number of its existing positions. Additionally, the hedge fund unloaded six stocks. The Baupost Group's stock portfolio is well-diversified, with stocks primarily from the communication, technology, healthcare, industrial, and financial sectors. The fund’s largest stock holdings include Union Pacific Corporation (NYSE:UNP), Dollar General Corporation (NYSE:DG), Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Amazon.com, Inc. (NASDAQ:AMZN), New Oriental Education & Technology Group Inc. (NYSE:EDU), Garrett Motion Inc. (NASDAQ:GTX), Willis Towers Watson Public Limited Company (NASDAQ:WTW), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Qorvo, Inc. (NASDAQ:QRVO) and Warner Bros. Discovery, Inc. (NASDAQ:WBD).
Seth Klarman of Baupost Group
Methodology
Because billionaire Seth Klarman is a legendary investor with a keen understanding of market behavior, paying attention to his stock portfolio can assist investors in selecting the right stocks. The following information is based on Baupost Group’s second-quarter 13F filing. We track hedge funds like Baupost Group because Insider Monkey research has shown that their consensus stock picks can deliver exceptional returns.
Stocks Billionaire Seth Klarman Likes the Most Now
10. Union Pacific Corporation (NYSE:UNP)
Value of Baupost Group’s 13F Position: $35 million
Number of Hedge Fund Shareholders: 89
Billionaire Seth Klarman initiated a new position in Union Pacific Corporation (NYSE:UNP) during the second quarter when its shares were trading around a 52-week low. Union Pacific Corporation (NYSE:UNP) shares are down about 2% so far in 2023. The underperformance is mainly attributed to lower revenue and earnings in recent quarters. Union Pacific Corporation (NYSE:UNP) missed revenue and earnings estimates for the second quarter by $157 million and $0.18 per share, respectively. On the positive side, Wall Street analysts expect Union Pacific Corporation (NYSE:UNP) to generate double-digit earnings growth in the coming years.
Hedge funds are also bullish about Union Pacific Corporation (NYSE:UNP). The number of hedge fund positions in Union Pacific Corporation (NYSE:UNP) increased to 89 in the second quarter, up from 87 in the previous quarter.
In the second quarter investor letter, Madison Investments, an investment advisor, highlighted the sustainability report of Union Pacific Corporation (NYSE:UNP). Here is what the firm stated about Union Pacific Corporation (NYSE:UNP):
“Union Pacific Corporation (NYSE:UNP) released its annual Sustainability report. Highlights include improved safety metrics as a result of its comprehensive approach to safe train operations through the use of technology in combination with training of its workforce. Train derailments declined by 21% compared to 2019. The company implemented a new qualitative cybersecurity risk management system to protect from cyber events. To date, the company has not experienced any material disruption due to a cyber attack or threat. The report also highlighted its annual giving with $24 million in donations across 2,500 non-profit organizations in 2022.”
9. Dollar General Corporation (NYSE:DG)
Value of Baupost Group’s 13F Position: $41 million
Number of Hedge Fund Shareholders: 57
Like Union Pacific Corporation (NYSE:UNP), value investor Seth Klarman used the dip in the share price of Dollar General Corporation (NYSE:DG) as a buying opportunity. Dollar General Corporation (NYSE:DG) shares are down nearly 60% year to date. The decline in the share price of Dollar General Corporation (NYSE:DG) was also taken as a buying opportunity by other hedge funds. Hedge fund positions in Dollar General Corporation (NYSE:DG) rose from 53 in the first quarter to 57 in the second quarter.
Aristotle Atlantic Partners, an investment management firm, made comments about Dollar General Corporation (NYSE:DG) in its second-quarter investor letter. Here is what the firm said about Dollar General Corporation (NYSE:DG):
“We sold our position in Dollar General, following a weaker-than-expected quarterly earnings report and a lowered earnings outlook. The company’s core consumer, while still employed, continues to be impacted by higher inflation. Additionally, we saw the negative impacts of lower-than-expected tax refunds and reductions in the Federal Supplemental Nutrition Assistance Program (SNAP). Dollar General remained committed to spending on customer experience and investing in price to help their customers through the tougher economic environment, as a result, reducing the earnings guidance by a greater amount than the sales reductions.”
8. Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Value of Baupost Group’s 13F Position: $83 million
Number of Hedge Fund Shareholders: 45
Similar to Dollar General Corporation (NYSE:DG) and Union Pacific Corporation (NYSE:UNP), Baupost Group has used the decline in the share price of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) as a buying opportunity. The firm increased its stake in Jazz Pharmaceuticals plc (NASDAQ:JAZZ) by 41% to $83 million. Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has lost 20% of its value so far in 2023. The outlook for Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has been improving despite the recent decline in share price. This is reflected in the earnings forecast for the full year, which is higher than expected. Jazz Pharmaceuticals plc (NASDAQ:JAZZ) increased its non-GAAP adjusted earnings per share guidance for the full year to $18.15-$19.00, up by $1.20 per share at the midpoint.
Hedge fund confidence in Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has also increased. Jazz Pharmaceuticals plc (NASDAQ:JAZZ) was in 45 hedge fund portfolios at the end of the second quarter, up from 40 in the previous quarter.
7. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Baupost Group’s 13F Position: $125 million
Number of Hedge Fund Shareholders: 283
During the second quarter, billionaire Seth Klarman initiated a new position in Amazon.com, Inc. (NASDAQ:AMZN) by purchasing shares worth $125 million. His firm appears to have benefited from its stake in Amazon.com, Inc. (NASDAQ:AMZN), as shares of the world's largest e-commerce company have risen 50% year to date, with the majority of the gains occurring in the second quarter. The share price of Amazon.com, Inc. (NASDAQ:AMZN) has surged due to strong financial growth. Its second-quarter revenue and earnings of $134 billion and $0.65 per share, exceeded expectations by $3 billion and $0.31 per share, respectively. According to FactSet data, Amazon.com, Inc. (NASDAQ:AMZN) was the best performer in the consumer discretionary sector in the first half of 2023, with expectations that financial growth momentum will accelerate in the second half of the year.
In the second quarter investor letter, Diamond Hill Capital, an investment management company, expressed confidence in Amazon.com, Inc. (NASDAQ:AMZN). Here is what the firm stated about Amazon.com, Inc. (NASDAQ:AMZN):
“Among our top contributors were insurance company American International Group (AIG), auto retailer CarMax and global online retailer Amazon.com, Inc. (NASDAQ:AMZN).
Amazon’s management team has been working to improve retail profitability, and Q1 results showed progress. In the case of Amazon’s web services (AWS), the market has shifted its focus from where growth will bottom in the near term to how AI can help accelerate the adoption of public cloud services in the future. We believe Amazon’s competitive advantages will continue to grow and that the business has the potential to grow faster than the overall economy in the coming years.”
6. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Value of Baupost Group’s 13F Position: $162 million
Number of Hedge Fund Shareholders: 26
So far in 2023, billionaire Seth Klarman’s Baupost Group benefited from its stake in New Oriental Education & Technology Group Inc. (NYSE:EDU). This is because shares of New Oriental Education & Technology Group Inc. (NYSE:EDU) have soared nearly 70% year to date, owing to record growth and profitability. New Oriental Education & Technology Group Inc. (NYSE:EDU) generated a 64.2% increase in net revenue year over year in the June quarter, while operating income jumped by 145.5% and net income grew by 115.3%. The share price growth trend is likely to continue because of a robust financial outlook. New Oriental Education & Technology Group Inc. (NYSE:EDU) expects September quarter net revenues to be in the range of $983.2 million to $1 billion, representing a year-over-year increase of 32% to 35%.
In the second-quarter investor letter, Hayden Capital, a value-oriented investment firm, discussed why it added New Oriental Education & Technology Group Inc. (NYSE:EDU) to its portfolio. Here is what the firm stated about New Oriental Education & Technology Group Inc. (NYSE:EDU):
“New Oriental Education & Technology Group Inc. (NYSE:EDU): We made a new investment in New Oriental last fall. Outside of one-on-one discussions with some partners, I’ve never discussed the investment in-depth before. The reason for this is that I simply because thought there wasn’t much to say.
The thesis at the time was extremely simple – the company was trading below the net cash value on its balance sheet, while I believed the on-going operations would soon return to profitable growth. As such, I believed the market was being overly pessimistic about the company’s future prospects, and the shares would re-value once the on-going education business returned to a surer financial footing.
Partners will notice that unlike a typical Hayden investment, this is more emblematic of a “special-situations” / event-driven thesis. Our thesis is dependent upon a specific catalyst & subsequent change in the market’s perception, more so than the longer-term attractiveness of the company’s operations. I expect our holding period will be shorter than our typical investments, for this reason…” (Click here to read the full text)
5. Garrett Motion Inc. (NASDAQ:GTX)
Value of Baupost Group’s 13F Position: $197 million
Number of Hedge Fund Shareholders: 35
Garrett Motion Inc. (NASDAQ:GTX), like Amazon.com, Inc. (NASDAQ:AMZN) and New Oriental Education & Technology Group Inc. (NYSE:EDU), is one of the 15 stocks billionaire Seth Klarman likes the most now. In the second quarter, Seth Klarman's firm increased its stake in Garrett Motion Inc. (NASDAQ:GTX) by 630%. Garrett Motion Inc. (NASDAQ:GTX) shares are down 4% year to date. The downtrend in the share price has made its valuation attractive, with a forward PE of only 8 versus the sector median of 15. Furthermore, the automobile company's strong financial outlook supports its share price upside. Garrett Motion Inc. (NASDAQ:GTX) earnings are expected to rise 30% and 25% year over year in 2023 and 2024, respectively.
As of the end of the second quarter, Garrett Motion Inc. (NASDAQ:GTX) was in 35 hedge fund portfolios. Howard Marks’ Oaktree Capital Management was the leading stakeholder in the company, according to data tracked by Insider Monkey.
4. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Value of Baupost Group’s 13F Position: $212 million
Number of Hedge Fund Shareholders: 35
Willis Towers Watson Public Limited Company (NASDAQ:WTW) shares have dropped 15% year to date, but Klarman sees the drop as a buying opportunity. During the second quarter, his firm increased its stake in Willis Towers Watson Public Limited Company (NASDAQ:WTW) by 6%. Willis Towers Watson Public Limited Company (NASDAQ:WTW) is an insurance broker that can generate long-term sustainable growth. Its revenue increased by 6% in the second quarter, and adjusted diluted earnings per share came in at $0.88. Wall Street anticipates mid-single-digit to high-single-digit percentage growth in revenue and earnings for Willis Towers Watson Public Limited Company (NASDAQ:WTW) in the coming quarters. Furthermore, with a dividend yield of more than 1.6%, Willis Towers Watson Public Limited Company (NASDAQ:WTW) appears to be a good stock for long-term investors.
As of the end of the second quarter, the number of hedge fund positions in Willis Towers Watson Public Limited Company (NASDAQ:WTW) was at 35. First Eagle Investment Management was the largest hedge fund holder in the company.
3. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Value of Baupost Group’s 13F Position: $225 million
Number of Hedge Fund Shareholders: 44
Although the share price of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) has remained range-bound and underperformed so far in 2023, Seth Klarman is optimistic about the company's future performance. As a result, Baupost Group took advantage of the drop in share price, increasing its stake in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) by 14% to $225 million in the second quarter. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) sells software and services to the healthcare and financial services industries. At the end of the second quarter, there were 44 hedge fund positions in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).
In the second quarter investor letter, investment management company, Vulcan Value Partners, highlighted reasons for initiating a stake in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). Here is what the firm stated about SS&C Technologies Holdings, Inc. (NASDAQ:SSNC):
“We purchased two new positions: Fiserv Inc. and SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). SS&C provides mission critical software and services primarily to the financial services and healthcare industries. The company has a highly recurring revenue stream supported by revenue retention rates in the mid 90% range. Operating margins have exceeded 35% for more than 15 years. SS&C is run by its founder, Bill Stone, whose capital allocation track record has been exceptional. SS&C has been investing in sales and marketing, improved customer service, product development and leadership, which are starting to yield results. We are happy to own the business once again.”
2. Qorvo, Inc. (NASDAQ:QRVO)
Value of Baupost Group’s 13F Position: $267 million
Number of Hedge Fund Shareholders: 34
Qorvo, Inc. (NASDAQ:QRVO) is among the 15 stocks billionaire Seth Klarman likes the most now. Qorvo, Inc. (NASDAQ:QRVO) shares are up more than 6% year to date, owing to overall optimism in the tech sector and better-than-expected financial results. For the September quarter, Qorvo, Inc. (NASDAQ:QRVO) expects revenue to be around $1 billion, a significant increase from the previous quarter's $651.2 million. Qorvo, Inc. (NASDAQ:QRVO) develops technologies for the wireless, wired, and other markets.
As of the end of the second quarter, Qorvo, Inc. (NASDAQ:QRVO) was in 34 hedge fund portfolios. Ken Griffin’s Citadel Investment Group was a leading stakeholder in Qorvo, Inc. (NASDAQ:QRVO).
1. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Value of Baupost Group’s 13F Position: $316 million
Number of Hedge Fund Shareholders: 67
Warner Bros. Discovery, Inc. (NASDAQ:WBD) stock has surged 10% year to date as improved cash flows boosted investor confidence. In the June quarter, Warner Bros. Discovery, Inc. (NASDAQ:WBD) generated $1.78 billion in free cash flow, compared to expectations of less than $1 billion. Furthermore, its revenue increased by 5% on an actual basis, while adjusted EBITDA of $2.15 billion increased significantly from $1.77 billion in the year-ago period. In an earnings call, Warner Bros. Discovery, Inc. (NASDAQ:WBD) CEO David Zaslav stated that the transformation plan has been driving strong financial performance. Due to the merger of Discovery and WarnerMedia, Warner Bros. Discovery, Inc. (NASDAQ:WBD) had amassed a mountain of debt. It ended the second quarter with $3.1 billion in cash on hand and $47.8 billion in gross debt.
As of the end of the second quarter, Warner Bros. Discovery, Inc. (NASDAQ:WBD) was in 67 hedge fund portfolios, up from 63 in the previous quarter.
Like Union Pacific Corporation (NYSE:UNP), Dollar General Corporation (NYSE:DG) and Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Amazon.com, Inc. (NASDAQ:AMZN), Warner Bros. Discovery, Inc. (NASDAQ:WBD) is among the 15 stocks billionaire Seth Klarman likes the most now
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Disclosure: None. 15 Stocks Billionaire Seth Klarman Likes the Most Now is originally published on Insider Monkey.
