Seth Klarman, the manager of the Boston-based Baupost Group, announced Monday that he was switching up his top holdings and anting up on an unpopular position. He also increased the overall size of the Baupost portfolio, bringing it from $2.4 billion at the end of the second quarter to roughly $3 billion as of September 30.
Seth Klarman is Bullish on BP
Seth Klarman nearly doubled his Baupost Group’s stake in BP Plc (BP), pushing his position from a value of $243 million at the end of the second quarter to value of $495.6 million, making it his fund’s largest holding (check out Seth Klarman’s portfolio). BP had been a new position for Klarman in the second quarter. The Baupost Group now owns 13.7 million shares of BP. The company has returned just 1.24% since the first of the year to November 11. BP closed trading Monday at $43.57 a share, near the upper end of its 52-week range of $33.63 to $49.50 a share. Analysts predict the stock could hit as high as $60 in the next 12 months. It is trading at just 6.03 times its earnings, much lower than the 7.87 rival Chevron (CVX) is trading at or the 9.53 times its earnings offered by Exxon Mobil (XOM). BP also offers a $1.68 dividend.
Seth Klarman is Aggressive on HPQ
Seth Klarman also initiated a $465.8 million position in Hewlett Packard (HPQ), which makes it his fund’s second largest position. HPQ is trading at just $27.32 on a 52-week range of $21.50 to $49.39. On average, analysts predict the company will reach just $30.63 in 12 months, although some are more optimistic, putting expectations on HPQ that it will go as high as $54 in the next year. Klarman must be of the latter camp. After all, HPQ has lost 34.78% from the first of the year to November 11. HPQ is trading at just 6.41 times its earnings. Competitors Dell (DELL) and IBM (IBM) are trading at 8.18 and 14.76 times their earnings respectively.
HPQ was popular with several hedge fund managers at the end of the second quarter – of the 300+ hedge funds we track 40 had positions in HPQ. But, things seem to be shifting. John Paulson’s Paulson & Co is reining back its positions in the company. He reduced his fund’s stake in the company from 23.5 million shares to just 15.2 million shares. Pershing Square’s Bill Ackman doesn’t like the company either. He said in early October that large shareholders at the company were begging him to buy in and whip the company into shake, but he isn’t interest (see why Bill Ackman hates HPQ here).
Other Portfolio Activity
Seth Klarman also initiated new positions in financial services and life insurance company Genworth Financial (GNW) and in gold exploration company NovaGold Resources (NG). Klarman also upped his stake in media giant News Corp (NWSA) Class A, while initiating a new position in News Corp Class B shares. Klarman also increased his holdings of Indenix Pharmaceuticals (IDIX), a biopharmaceutical company focusing on viral and infectious diseases, Sycamore Networks (SCMR), a network and communications company, and Theravance (THRX), a biopharmaceutical company dealing in small molecule medicines, amongst others. He sold out of only two positions – electronics manufacturer Audoiovox (VOXX) and financial services company CapitalSource (CSE). VOXX gained 27.69% since the end of the third quarter, bringing its total year-to-date return to -19.24%, while CSE returned 0.16% since the end of September, bringing its YTD return to -13.87%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.