Tracking Seth Klarman's Baupost Group Holdings - Q4 2015 Update

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Includes: AA, AER, AIG, ALDW, AOI, AR, ATRA, BEAV, BITI, BXE, DVMT, EBAY, FOX, FOXA, FTR, FWP, IMOS, INVA, KERX, KIN, KLXI, KOS, LNG, LNGLY, LOCK, MU, NG, OCN, OLN, OREX, PBF, PRTK, PXD, PYPL, RUN, SEMI, SN, SUNEQ, TBPH, TMQ, VMW, VRTV, VSAT
by: John Vincent

Summary

Seth Klarman’s US long portfolio decreased from ~$6B to ~$5.51B this quarter.

Baupost Group added EMC Corporation while dropping Alcoa, eBay, and Pioneer Natural Resources.

The portfolio continues to be heavily concentrated, with the top three positions accounting for ~44% of the entire US long portfolio.

This article is part of a series that provides 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 02/12/2016. 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 Q3 2015.

Baupost Group's US long portfolio decreased 8.15% from $6B to $5.51B this quarter. The total number of 13F securities held decreased from 39 to 35, as they dropped several positions. The portfolio is heavily concentrated, with Cheniere Energy, EMC Corporation, ViaSat Inc., Antero Resources, and PBF Energy together accounting for around 59% of the 13F holdings.

Since inception (1982), Baupost Group's US 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. Seth Klarman's distinct investment style is elaborated in his 1991 book, "Margin of Safety: Risk-averse value investing strategies for the thoughtful investor". The book is out-of-print and copies sell for a huge premium.

New Stakes:

EMC Corporation (EMC): EMC is the second-largest 13F stake at 13.62% of the portfolio. It was established this quarter at prices between $24.16 and $28.35. The stock currently trades at $24.13.

Note: On October 12, 2015, Dell announced a deal to acquire EMC in a transaction valued at $33 per share - $24.05 per share cash and $9 per share in VMWare (NYSE:VMW) tracking stock. VMW's share price has fallen ~40% since the announcement, thus correspondingly reducing the tracking stock portion of the deal's value.

Stake Disposals:

Alcoa Inc. (NYSE:AA): AA was a very large (third-largest) 8.41% of the US long portfolio stake established last quarter at prices between $8.11 and $11.10. The entire position was sold this quarter at prices between $7.82 and $11.01. The stock currently trades at $7.68. The quick about-turn in a large position indicates a clear bearish bias.

eBay Inc. (NASDAQ:EBAY): EBAY was a 3.79% of the US long portfolio stake. It was established in Q2 2014 at prices between $18.95 and $21.95 and was increased by ~37% in the following quarter at prices between $19.64 and $22.24. Q4 2014 saw another ~53% increase at prices between $18.80 and $22.59. This quarter saw the elimination at prices between $24 and $30. The stock currently trades at $22.49.

Note: EBAY attracted a lot of super-investor interest (Carl Icahn, Wallace Weitz, Mark Hillman, and Leon Cooperman) and activist pressure forced the company to spin off its PayPal (NASDAQ:PYPL) subsidiary. The prices quoted above are adjusted for that spinoff.

Pioneer Natural Resources (NYSE:PXD): PXD was a large (top-five) 8.38% of the US long portfolio stake established in Q1 2015 at prices between $135 and $167 and increased by ~28% the following quarter at prices between $148 and $180. This quarter saw the entire stake eliminated at prices between $116 and $149. The stock currently trades at $115.

AerCap Holdings NV (NYSE:AER) and LifeLock Inc. (NYSE:LOCK): These two small stakes (less than ~2% of the portfolio each) were established last quarter but sold off this quarter. Klarman had a significant ~4.7% ownership stake in LOCK.

Alliance One International (NYSE:AOI) and Alon USA Partners LP (NYSE:ALDW): These two minutely small stakes (0.16% and 0.14% of portfolio, respectively) as of last quarter were eliminated this quarter. Although the relative sizing was small, Klarman's ownership stake in AOI was significant at ~5% of the business.

Stake Increases:

Antero Resources Corporation (NYSE:AR): AR is a large (top-five) 7.58% of the US long portfolio position established in Q3 2014 at prices between $54.50 and $65.71. The stake was increased by ~185% the following quarter at prices between $38.60 and $55.51. Q1 2015 saw a further ~19% increase at prices between $34.02 and $42.35. The pattern reversed in Q2 2015: ~14% reduction at prices between $34 and $46. Last quarter saw a stake doubling at prices between $20.20 and $34.34 and that was followed with a ~19% increase this quarter at prices between $19 and $26. The stock currently trades at $26.02. Klarman controls 18.72% of the business.

Cheniere Energy (NYSEMKT:LNG): LNG is Klarman's largest 13F position at 17.63% of the US long portfolio. The original stake was established in Q1 2014 at prices between $41 and $55. In Q3 2014, it was increased by ~87% at prices between $70 and $84 and that was followed by another 23% increase the following quarter at prices between $62 and $80. Q2 2015 saw a further ~11% increase at prices between $68.49 and $80 and that was followed with another 48% increase last quarter at prices between $47.47 and $70.65. This quarter also saw a ~15% increase at prices between $36 and $54. The stock currently trades well below those ranges at $26.05. For investors attempting to follow Baupost, LNG is a good option to consider for further research.

Note 1: The size of this position per the regulatory 13G filing does not tally with the figure in the 13F report. That report shows Baupost owning 37.09M shares (15.01% of the business) compared to 26.09M shares in the 13F.

Note 2: Klarman also has a ~10% ownership interest in Liquefied Natural Gas Ltd. (OTCPK:LNGLY), a similar business as Cheniere Energy. It was increased significantly in October 2014.

KLX Inc. (NASDAQ:KLXI): KLXI is a small ~1.12% of the US long portfolio position established in Q1 2015 at prices between $37.34 and $41.65. This quarter saw a one-third increase at prices between $30 and $41. The stock currently trades well below those ranges at $26.99.

Note: KLXI is a spinoff from B/E Aerospace (NASDAQ:BEAV) and it started trading in December 2014.

PayPal Holdings : The large 7.29% PYPL position was established last quarter as a result of the spinoff of PayPal from eBay that closed in July. Klarman had 9.3M shares of eBay and received the same number of PayPal shares. He also increased the stake by ~17% after the transaction. PYPL started trading at $36.71 and currently trades at $34.30. This quarter also saw a marginal increase.

Veritiv Corporation (NYSE:VRTV): VRTV is a 1.90% of the US long portfolio position established in Q3 2014 at prices between $32.50 and $50.22. Q2 2015 saw a ~9% increase at prices between $35.50 and $45.16 and that was followed with a ~13% increase last quarter at prices between $33.06 and $42.60. The stock currently trades at $28.71. This quarter saw a minor further increase.

Note: Klarman's ownership interest in VRTV is at 18.04%.

Biotie Therapies (NASDAQ:BITI), Orexigen Therapeutics (NASDAQ:OREX), Sanchez Energy (NYSE:SN), and Sunrun Inc. (NASDAQ:RUN): These very small (less than ~0.5% of the portfolio each) stakes saw significant buying this quarter. The relative sizing is still very small.

Note: Klarman has very significant ownership stakes in the following businesses: 17.1% of BITI and ~18.13% of OREX.

Stake Decreases:

Frontier Communications (NYSE:FTR) and PFD CNVTs: FTR is a small 1.57% stake established in Q2 2015 at prices between $4.80 and $7.50. It was reduced by ~19% this quarter at prices between $4.50 and $5.40. The stock is now at $4.24.

Kosmos Energy (NYSE:KOS): The very small 0.44% KOS position was purchased in Q2 2014 at prices between $10.05 and $11.23. Q4 2014 saw a ~52% increase at prices between $7.09 and $10.25. Q2 2015 saw an about-turn as ~17% of the stake was sold at prices between $7.91 and $9.78. That was followed with a ~23% reduction this quarter at prices between $4.73 and $7.81. The stock currently trades at $3.99.

NovaGold Resources Inc. (NYSEMKT:NG): NG is a 1.45% stake built up over several quarters in 2012 at prices between $3.5 and $12. The most recent purchases happened in Q3 2012 and Q4 2012 when the stake was increased by roughly one-third at prices between $3.68 and $6.19. This quarter saw a ~13% reduction at prices between $3.27 and $4.47. The stock currently trades at $4.84.

Kept Steady:

Atara Biotherapeutics (NASDAQ:ATRA): ATRA is a 2.57% of the US long portfolio stake established in Q4 2014 at around $19 per share. In Q1 2015, the stake was increased by ~90% at prices between $18 and $42.90. The stock currently trades at $15.41. Klarman controls 18.72% of the business.

Bellatrix Exploration (NYSE:BXE): BXE is a very small 0.53% of the US long portfolio stake. It was established in Q4 2014 at prices between $2.99 and $6.15 and increased by ~21% the following quarter at around $2.50. The stock currently trades at $1.02. Klarman controls 12.50% of the business.

ChipMOS (NASDAQ:IMOS): IMOS is a small 1.35% of the US long portfolio position established in Q2 2013 at prices between $12.30 and $20. The stake was increased by ~19% the following quarter at prices between $15 and $21. Last quarter saw a ~14% increase at prices between $15.39 and $22. The stock currently trades at $14.49.

Note: Klarman controls 13.75% of ChipMOS.

Citigroup WTS (C.WS.A): The warrants have a strike price of $106.10 and expire on 01/04/2019. They currently trade at $1.15 (for ten warrants which can be converted to one Citigroup common stock, Yahoo Ticker C-WTA). The bulk of the 0.33% 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's common stock trades well above the strike price before expiry.

Forward Pharma (NASDAQ:FWP): FWP is a small 1.85% of the US long portfolio stake established in Q1 2015 at around $22. The stock currently trades at $16.76.

Note: Klarman controls 11.55% of the business.

Keryx Biopharmaceuticals (NASDAQ:KERX): KERX is a small 2.36% of the US long portfolio position established in Q1 2014 at prices between $12.16 and $17.04. In Q2 2014, the position was increased by two-thirds at prices between $12.11 and $17.04, and the following quarter the pattern continued with a ~74% stake increase at prices between $12.71 and $18.19. H1 2015 had also seen a ~40% further increase at prices between $9.32 and $14.68. The stock currently trades well below the low-end of those ranges at $3.42. His cost-basis is at around $12.

Note: On Oct 15, 2015, KERX had a capital raise through a convertible debt transaction with Baupost for $125M due 2020 and convertible at $3.74 per share. A Form 3 filed on 10/20/2015 indicates the beneficial ownership including this transaction at 42M shares (34.61% of the business).

Kindred Biosciences (NASDAQ:KIN): KIN is a very small 0.19% of the US long portfolio position. The stake as a percentage of the business is very significant at over 15%. It was established in Q4 2013 at a cost basis of around $11. The stock is now at $3.49.

Micron Technology (NASDAQ:MU): As of Q3 2014, MU was Klarman's largest position at 30.82% of the US long portfolio. The stake was first established in Q2 2013 at prices between $9.10 and $14 and increased by just over 50% in Q3 2013 at prices between $12.55 and $17.60. Q4 2014 saw an about-turn as ~62% of the position was sold at prices between $27.03 and $36.49. Last quarter, the remaining stake was almost eliminated at prices between $14.06 and $20.12. The stock currently trades at $10.02. Klarman's timely exit netted huge long-term gains.

NovaCopper (NCQ): This is a minute stake at 0.05% of the US long portfolio. Q2 2015 saw a ~76% increase at prices between $0.50 and $0.66 and the stock is now at $0.28.

Note: Klarman's ownership stake is at 10.12% of the business.

Ocwen Financial (NYSE:OCN): OCN is a 0.66% of the US long portfolio stake established in Q3 2014 at prices between $25 and $37. In Q4 2014, the position was reduced by ~15% at prices between $14.32 and $26.26. Q1 2015 saw an about-turn as the stake was increased by ~30% at prices between $5.77 and $15.10. The pattern reversed last quarter: one-third reduction at prices between $6.67 and $11.76. The stock currently trades at $5.13.

Note: Baupost's ownership of the business is ~4%.

Paratek Pharmaceuticals (NASDAQ:PRTK): PRTK is a small 0.53% of the US long portfolio stake established as a result of a cash infusion prior to the reverse stock split, merger, and name-change transaction of Paratek (privately held at the time) with Transcept Pharma (Nasdaq listed at the time) in November 2014. Q2 2015 saw a ~11% reduction at prices between $24.33 and $32.49. The stock currently trades at $13.01.

Note: Baupost Group controls 8.77% of the business.

PBF Energy (NYSE:PBF): PBF is a large 7.36% of the US long portfolio position first purchased in Q3 2013 at prices between $21 and $26. It was more than doubled in Q4 2013 at prices between $21.44 and $31.46 and was increased by over 175% in Q1 2014 at prices between $23.79 and $31.46. Since then, the stake was increased by ~45% through periodic buying. The stock currently trades at $29.13.

Note: Klarman's ownership interest in PBF is 11.29%.

SunEdison Semiconductor (NASDAQ:SEMI): SEMI is a 1.19% of the US long portfolio position established in Q2 2014 at prices between $14.37 and $17.76 and increased by ~90% in Q1 2015 at prices between $15.19 and $27.14. The stock currently trades below his purchase price ranges at $3.73. SEMI was spun-off from SunEdison Inc. (SUNE) on May 22, 2014.

Note: Klarman's ownership interest in SunEdison Semiconductor is 19.95%.

Theravance Biopharma (NASDAQ:TBPH): TBPH is a 1.91% of the US long portfolio position established in Q2 2014 as a result of the spinoff of TBPH from THRX. The spinoff terms called for THRX shareholders to receive 1 share of TBPH for every 3.5 shares of THRX held. The original stake was increased by ~5% in Q1 2015 at prices between $14.70 and $21.73. The stock currently trades at $14.86. TBPH has dropped ~35% since the May 2014 spinoff.

Note: Klarman controls 16.97% of the business.

Innoviva Inc. (NASDAQ:INVA) previously Theravance: INVA is a 3.79% of the US long portfolio stake. It is a very long-term position that has been in the portfolio since 2008. The stock currently trades at $11.99.

Note: Baupost controls 18.99% of the business.

Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA): FOX is a medium-sized 5.24% of the portfolio stake established last quarter at prices between $25.41 and $33.52. The stock currently trades just below that range at $24.67.

ViaSat (NASDAQ:VSAT): VSAT is Klarman's third-largest US long position at 12.76% of the portfolio. Since Q3 2012, the stake has seen only minor increases. Klarman first purchased VSAT in 2008 at much lower prices and his overall cost basis is in the high-teens. The stock currently trades at $62.45. He is sitting on huge gains on the position. The stock returned ~60% in 2013 but has since remained flat.

Olin Corporation (NYSE:OLN) & American International Group (NYSE:AIG) WTS: These small stakes (less than ~2% of the portfolio each) were kept steady this quarter.

Note 1: The ownership stake in Olin Corporation is very significant at ~4.2%.

Note 2: The 13F also lists a very small position in Theravance Notes. It was increased by ~20% in Q1 2015 and the stake is currently at 0.65% of the 13F portfolio.

The spreadsheet below highlights changes to Klarman's US stock holdings in Q4 2015:

Click to enlarge

Disclosure: I am/we are long AIG, EBAY, INVA, KERX, LNG, NG, PYPL, TBPH.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.