Two Picks, One Sell Among Seth Klarman's Best Performing Top Buys

 |  Includes: BP, ELOS, GNW, IDIX, NG, NWSA, VSAT
by: The Analyst Hub

Founded by Seth Klarman in 1982, The Baupost Group, L.L.C. is a Boston, MA-based investment advisory and hedge fund firm. The fund follows "Deep Value" investment style and holds stocks for the long term. The following is a list of its best performing top buys from the last quarter.



Shares Held - 06/30/2011

Shares Held - 09/30/2011

% Change in Share Price (Sept. 30, 2011- till date)

Idenix Pharmaceuticals Inc.





Viasat Inc.





Novagold Resources Inc.





BP Plc





News Corp.





Syneron Medical Ltd.





Genworth Financial Inc.





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Source: 13F filing

My favourite long candidates among above stocks are BP and Syneron Medical. However, I don't like News Corp and believe one should book profits in it after recent rally.

BP, the international oil and gas company, operates its products in more than 80 countries, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products. The Company operates two segments: Exploration and Production, and Refining and Marketing. BP's EPS forecast for FY11 is $6.75 and FY12 is $6.52.

BP is currently trading at 6.56x FY12. The Gulf of Mexico spill in 2010 and the proposed Russian Arctic in 2011 have clearly weighed on BP shares. However, I believe most of the negatives are already priced in at these levels. Going forward I believe risk-rewards are skewed towards and upside. Given BP's diverse oil and gas portfolio and financial flexibility, I believe it can easily weather any reasonable cost estimates for the spill.

Syneron is another good buy from the above list. The company makes light-based equipment used for aesthetic procedures such as hair removal, body shaping, and treatment of vascular and pigmented lesions. Syneron's stock is trading at a valuation of 0.5x EV/Sales, which is very attractive. Its cash position accounts for approximately two-thirds of its equity value. All three analysts covering the company have buy ratings with a median target price of $18.33,which implies approximately 65% upside. I would recommend buying the company from a long term perspective given its market leadership position, continued market share gains and improving margin structure. It is a small cap stock with just $385 mn market cap, and not many fund managers have a position in this one. Things can change for the better once Wall Street starts understanding the story better.

One stock in the above list where I would recommend booking profits is News Corporation, the diversified global media company. The Company operates in six segments: Cable Network Programming; Filmed Entertainment; Television; Direct Broadcast Satellite Television; Publishing, and Other. I believe News Corp being a media company will be among the first companies to take a hit if there is a slowdown and its clients cut advertising spend.

In the long run, I see a big risk to "Old Media" television companies as time spent on prime-time television is decreasing and internet usage (web 2.0 in particular) is increasing. Gadgets like iPads are also a big risk. News Corp dabbled in Web 2.0 business with MySpace but failed miserably. This clearly shows that News Corp (or for that matter any "Old Media" companies) do not have any inherent advantage in "New Media" business and are likely to see tough competition going forward. Further reputation loss caused by the phone hacking scandal will continue to haunt News Corp in the long term and would adversely affect its influence.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.