By Matt Doiron
We maintain a database of quarterly 13F filings from hedge funds such as Seth Klarman's Baupost Group (Klarman is a well known value investor; copies of his investing book Margin of Safety have sold for as much as $1,500). One use of these filings is to help develop investment strategies (we have found, for example, that the most popular small-cap stocks among hedge funds earn an average excess return of 18 percentage points per year). We can also see what individual managers such as Klarman have been consistent in liking over the past couple years. Here are the five largest holdings in Baupost's portfolio as of the beginning of this year, which the fund also had at least $10 million invested in at the end of 2010 (or see the full list of stocks Baupost owned):
Klarman and his team owned 11 million shares of Viasat (VSAT), a $2.6 billion market cap communications company. Viasat is unprofitable on a trailing basis, though it did surprise the Street by reporting a narrow profit in the fourth quarter of 2012. In that quarter revenue rose 40% versus a year earlier. Baupost may like the stock, but a number of market players consider it overvalued and the most recent data shows that 16% of the float is held short, and the sell-side is not especially optimistic either as their forward earnings estimates (for the fiscal year ending in March 2014) imply a forward P/E of over 60.
The fund has also consistently included News Corp (NWSA) among its largest holdings for the past couple of years. News Corp was the most popular consumer services stock among hedge funds in the fourth quarter of 2012 (find more consumer services stocks hedge funds loved). We'd attribute that interest to News Corp's plans to split into two; the breakup may well allow management of the new companies to better run operations without having to concern themselves with the needs of the larger firm, similarly to how spin-outs often create shareholder value. The stock price has risen 64% in the last year as the market anticipates at least some improvement.
Theravance (THRX), a biotechnology company whose products are used to treat conditions such as respiratory diseases and bacterial infections, is another of Klarman's long term picks. The sell-side is forecasting net losses both this year and in 2014. On May 10, the stock rose over 10% following one of its drug candidates' approval in the United States for chronic obstructive pulmonary disease, a lung disease; the drug, is co-developed with GlaxoSmithKline. Theravance has been another popular short target, with short sellers responsible for 27% of the float.
Baupost disclosed ownership of 4.9 million shares of AVEO Pharmaceuticals (AVEO) as of the end of December. AVEO's market capitalization is only about $130 million, but on average close to 2 million shares are traded per day and so at the current price of over $2.70 we'd say there is plenty of dollar volume. It too is a development stage biotech company, with its leading product candidate designed to treat renal cancer. The stock has dived 79% in the last year as investors have become much more pessimistic about AVEO's prospects for successfully developing and marketing its products.
The most recent 13F reported a position of 7.9 million shares in Enzon Pharmaceuticals (ENZN) though this was down 13% from what Klarman had in his portfolio at the end of September. Enzon is another smaller-cap stock, though daily dollar volume is about $1 million, and in addition a large share of its current market capitalization is represented by the company's cash rather than its enterprise value. Management has reported that they are looking to pay out a special dividend to shareholders and look to sell any of Enzon's remaining assets.