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(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

This article is part of a series that provide an ongoing analysis of the changes made to Baupost Group's U.S. stock portfolio on a quarterly basis. It is based on Klarman's regulatory 13F Form filed on 08/14/2013. Please visit our Tracking Seth Klarman's Baupost Group Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q1 2013.

Klarman's U.S. long portfolio increased from ~$3.1B to ~$4B this quarter. A very large ~15% position in Micron Technology (MU) was established this quarter and the ~10% position in Theravance (THRX) was increased to a ~16% position. Since inception (1982), Baupost Group's U.S. long portfolio has accounted for between 2.4% to 15% of the Assets Under Management (AUM). The current allocation is at the high-end of that range. The rest of the AUM is diversified among cash, debt, real estate, and hedges. The fund continues to hold well over a quarter of the AUM in cash. The number of holdings in the U.S. long portfolio remained at 21 this quarter.

New Stakes:

Micron Technology: MU is huge 14.79% of the U.S. long portfolio position established this quarter at prices between $9.10 and $14. The stock currently trades outside that range at $14.90. The stake establishment indicates a clear bullish bias. But, investors attempting to follow Klarman will have to wait for a better entry point.

ChipMOS Technologies (IMOS): IMOS is a small 1.33% of the U.S. long portfolio position established this quarter at prices between $12.30 and $20. The stock currently trades at around $17. The minor stake establishment indicates a mild bullish bias.

Yamana Gold (AUY), Kinross Gold (KGC), & Pretium Resources (PVG): These are very small positions in the gold-mining sector established this quarter. Combined, they account for about 1% of the U.S. long portfolio. The minor stake establishment does not indicate a clear bias. However, this allocation is a significant shift as his earlier allocations in the area were focused on the junior gold mining space.

Stake Disposals:

Directv (DTV): DTV was a minute 0.38% position established last quarter at prices between $47 and $57. The position was disposed of this quarter at prices between $54 and $65. The quick turnaround of a very small position does not indicate a clear bias.

Elan PLC (ELN): ELN is a 3.46% position established last quarter at prices between $10 and $12 and disposed of this quarter at prices between $11.50 and $14.15. This was an opportunistic buy for Klarman as it was known that the company might get sold. On July 29, 2013 Perrigo Company (PRGO) agreed to acquire ELN at ~$16.50 per share.

News Corp Class B (NWS): News Corporation was Klarman's largest 13F position as of Q4 2012, with the Class A (NWSA) and Class B shares together accounting for almost 17% of the portfolio. In Q1 2013, the position was reduced substantially and was eliminated this quarter. NWS is a long-term holding and Klarman's cost-basis was very low. During a rare video conference at the Ben Graham center for Value Investing, Klarman indicated that the breakup value of News Corp in a distressed environment is over $20 per share and in a normal environment should be between $20 and $30. The stock was trading in the $5 range when he made those comments in March 2009. Klarman harvested the gains as the stock traded past his valuation range. On June 28, 2013 News Corp split into two: the publishing division that retained the News Corp name and the movie and TV division which was named Twenty-First Century Fox (FOX) (FOXA).

Microsoft Corporation (MSFT) CALLs: MSFT calls were a 1.72% of the U.S. long portfolio established in Q4 2012 and disposed of this quarter. MSFT traded between $26.60 and $31.50 in Q4 2012 and between $28.50 and $36.50 in Q2 2013. The stake disposal indicates a mild bearish bias.

Stake Increases:

BP PLC (BP): BP is Klarman's second largest 13F position and represents 19.30% of the U.S. long portfolio. The position was increased by around 60% last quarter at prices between $40 and $45 and marginally this quarter at prices between $40 and $44. The huge stake build-up over the last year has been at prices between $36 and $49. The stock currently trades within that range at $41.50. The large position size indicates a clear bullish bias. For investors attempting to follow Klarman, BP is a very good option to consider.

Idenix Pharmaceuticals (IDIX): IDIX is a 2.40% of the U.S. long portfolio stake that was built-up over several quarters starting in Q2 2011. It is a very volatile stock and the price fluctuated between $3.5 and $15 during the period of the stake acquisition. The last two quarters saw a stake doubling at prices between $3.20 and $5.40. This quarter, the position was increased marginally at prices between $3.33 and $5.40. The stock currently trades at $4.34. The significant stake increase over several quarters in the face of falling prices indicates a clear bullish bias. For investors attempting to follow Klarman, IDIX is a good option to consider.

Citigroup WTS (C.WS.A): The warrants have a strike price of $106.10 and expire on 01/04/2019. They currently trade at $8 (for ten warrants which can be converted to one Citigroup common stock). The bulk of the 1.84% position was established at prices between $4.50 and $5.80. It is a leveraged bullish bet on Citigroup that would pay off handsomely, if Citigroup common stock trades well above the strike price before expiry.

Theravance Inc.: THRX is a large 15.84% of the U.S. long portfolio position that was increased by over 20% this quarter at prices between $22.50 and $42. It currently trades at around $37. It is a very long-term position that has been in the portfolio since 2008. The stock is up around 75% YTD - the price spiked in May following a $1B royalty deal with Elan PLC.

Stake Decreases:

American International Group (AIG): AIG is a large 11.55% position established in Q4 2012 at prices between $30.68 and $37.21. The position size was increased by close to 80% last quarter at prices between $35 and $40. This quarter saw a turnaround, as the position was trimmed by 15% at prices between $37.50 and $46. The stock currently trades at around $48.

Rovi Corporation (ROVI): ROVI is a 3.50% of the U.S. long portfolio stake established in Q3 2012 at prices between $10.01 and $19.14. The position was almost doubled last quarter at prices between $15.43 and $21.43. This quarter, the position was reduced by ~25% at prices between $20 and $26.50. The stock currently trades below that range at around $18.80. The stake reduction indicates a bearish bias.

Aveo Pharmaceuticals Inc. (AVEO) and Central Pac Financial Corp. (CPF): AVEO and CPF are small positions, each accounting for less than 1% of the U.S. long portfolio. They were both reduced substantially this quarter. The stake reduction indicates a mild bearish bias.

Alliance One International (AOI): AOI is a very small position (0.72% of the U.S. long portfolio) that was reduced marginally this quarter. As the position size is very small and the stake reduction was minor, the activity does not indicate a clear bias.

The rest of the portfolio remained steady during the quarter:

Viasat (VSAT): VSAT is currently Klarman's largest U.S. long position accounting for 19.54% of the portfolio. The position was increased marginally in Q3 2012 at prices between $33.85 and $40.85 and again in Q4 2012 at prices between $35 and $41. Since then, the position has been kept steady. The stock currently trades at over $68. Klarman first purchased VSAT in 2008 at much lower price-points but has consistently built the stake over the last five years. He is sitting on huge gains on the position. The stock has returned ~80% this year, but Klarman is continuing to hold on.

Oracle Corporation (ORCL): ORCL is a 1.82% of the U.S. long portfolio stake established in Q2 2012 when the price-per-share varied between $25.61 and $29.70. It was trimmed by around 15% in Q3 2012 at prices between $28.82 and $33.10 and by just over 22% in Q4 2012 at prices between $29.58 and $34. The position was reduced by another two-thirds last quarter at prices between $31.25 and $36.34 and kept steady this quarter. The stock currently trades at around $33.50. The activity signifies a clear bearish bias.

Enzon Pharmaceuticals Inc. (ENZN) & Ituran Location and Control (ITRN): ENZN and ITRN are very small positions accounting for 0.38% and 0.44% of the U.S. long portfolio respectively. They were both kept steady this quarter. As the position sizes are very small, the stakes do not represent a clear bias.

Novagold Resources Inc. (NG): NG is a 1.14% stake built up over several quarters last year at prices between $3.5 and $12. The position was increased by one-third in Q3 2012 at prices between $3.68 and $6.19 and marginally in Q4 2012 at prices between $4.19 and $5.60. The stock currently trades well below that range at around $2.90. Klarman is sitting tight in the face of a large price-drop on this position.

Novacopper Inc. (NCQ), and Syneron Medical Ltd. (ELOS): These are minute positions, each accounting for less than 1% of the U.S. long portfolio. They were kept steady this quarter and so do not indicate a clear bias.

The spreadsheet below highlights changes to Klarman's U.S. stock holdings in Q2 2013:


(Click to enlarge)

Source: Tracking Seth Klarman's Baupost Group Holdings - Q2 2013 Update