Seth Klarman's Best-Performing Buys: 2 Potential Long, 1 To Avoid

 |  Includes: BP, CAJ, GNW, HPQ, IDIX, LXK, NG, NWSA, VSAT
by: Rash Menaria

The Baupost Group, LLC is a Boston based hedge fund run by Seth Klarman. It emphasizes on value investing and manages assets over $20 billion. Baupost will be filing its 13F for the quarter ended Dec. 31 in the next few days. Meanwhile, it is interesting to have a look at some of its winning buys from the September quarter. These stocks have significantly outperformed S&P500's 15% gain since September 30, with all of them returning north of 20%.



Shares Held - 09/30/2011

Shares Bought in Sept. Quarter

Price rise since Sep 30th

Hewlett-Packard Company










Genworth Financial Inc.





Novagold Resources Inc.





News Corp.





Viasat Inc.





Idenix Pharmaceuticals Inc.





Click to enlarge

Source: 13F Filing

My favorite long candidates among above stocks are News Corp and BP Plc.

News Corp. is a global diversified media and entertainment Company that operates 5 major segments; Cable network programming, Filmed entertainment, Television, Direct broadcast satellite television and Publishing.

NWSA is seeing positive trends in most of its business segments which is likely to result in significant upside in its earnings. News Corps' cable network is in a favorable position due to affiliate fee negotiations and growth at Fox International Channel. Fox broadcast is likely to generate above peers revenue in the form of retransmission fee and reverse compensation revenue. With industry leading ratings, it is also expected to generate strong advertising growth.

Looking at its longer term prospects, satellite segment is expected to generate significant earnings as the regulatory environment eases up and more favorable programming packages are made available. Twentieth Century Fox's cautious strategy as domestic box office trends declined seems to be paying off. However they do have a strong film slate for the next few years aided by "Rise of the Planet of the Apes," "Rio" and X-Men and Avatar sequels.

NWSA also has a very strong cash position. In 2011 it bought back over $2.5 billion and is expected to continue its buybacks in 2012. With focus on core operations and strong fundamentals, NWSA is expected to do well in the near term and long term.

I also like BP Plc primarily due to the money-printing binge of U.S. government which is fueling inflation across the globe and commodities are expected to benefit from it. I am bullish about prospects of oil in particular. Since oil and gas stocks directionally trade in line with the crude oil price, I see a good upside in them. BP, in particular, is trading at very attractive levels at less than 7x forward PE and I see a good potential upside in its stock price.

One stock in the above list, where I would recommend booking profits is Hewlett Packard. Hewlett Packard Company is an American multinational that provides products, technologies, software solutions and services to individual consumers and businesses. Its products include PCs, workstations, printers and scanning devices. In addition it provides consulting, outsourcing and technology services along with enterprise servers and information management solutions.

Recent read through from Cannon (NYSE:CAJ) and Lexmark (NYSE:LXK) indicate disappointing trends in the printers market. Revenues slowdown in the US and macro concerns in Europe are likely to continue. Canon's Q4 performance and flat revenue guidance for 2012 could mean additional near term pressure on HPQ's estimates.

In addition, PCs and servers also expected to be areas of weakness for HPQ as indicated by difficult demand environment during December. Further, investments in R&D and S&M and high interest expense are likely to weigh on its earnings. It is likely that Q1 2012 revenue and earnings could miss the consensus estimates.

With a high exposure to eurozone, secular declines in printers and PCs and foreign exchange pressures, I believe that HP's stock price could see a decline going forward.

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