Seeking Alpha
Long only, value, special situations, fund holdings
Profile| Send Message| ()  

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. Klarman's U.S. long portfolio increased by around 30% during the quarter from $2.96B to $3.8B. The increase is primarily due to building significant new stakes and increasing a number of his previous holdings. Baupost Group's U.S. long portfolio has only accounted for between 2.4% to 15% of the Assets Under Management (AUM) since inception (1982). The current allocation is above that range and signifies a clear shift in bias towards U.S. equities. 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 has increased from 20 to 22. Baupost eliminated two very small positions this quarter (Alere Inc. and Multimedia Games Holding Company Inc.) but added four new positions: Genworth Financial, Hess Corporation, Novacopper Inc. and Oracle Corporation.

New Stakes:

Oracle Corporation (ORCL): ORCL is over 12% of the U.S. long portfolio stake that was established this quarter when the price-per-share varied between $25.61 and $29.70. It is Klarman's fourth largest holding in the U.S. long portfolio, behind News Corp, BP PLC and Hewlett Packard. Investors attempting to follow Klarman will have to wait for a better entry point on ORCL as it is trading at over $31 per share, well outside the range Klarman could have bought it at.

Genworth Financial (GNW): GNW is a relatively small 2.2% of the U.S. long portfolio stake established this quarter. A similarly sized stake was earlier established in Q4 2011 at prices between $4.80 and $10.68 only to dispose it off last quarter at prices between $6.55 and $9.54. The current stake was purchased at prices between $4.89 and $8.38 and the stock currently trades just below that range at around $4.80. GNW is trading at a very large discount to tangible book value and appears to be a classic value pick.

Hess Corporation (HES): HES is a small ~1% of the U.S. long portfolio stake established this quarter when the price-per-share varied between $39.95 and $59.55. The stock currently trades at around $49 right at the mid-point of the price range Klarman could have bought it at. The small stake does not indicate a clear bias.

Novacopper Inc. (NCQ): NCQ is a minute ~0.15% stake that was acquired this quarter as a result of the spin-off of NCQ from Novagold Resources Inc (NG). NCQ is a micro-cap with a capitalization of just around $80M. Klarman generally does not invest in such companies and it will be interesting to see what he does with this position going forward.

Stake Disposals:

Multimedia Games Holding Co. Inc. (MGAM) and Alere Inc. (ALR): These were very small stakes that were significantly reduced in previous quarters and were sold-off completely this quarter. The stake disposals indicate a bearish bias.

Stake Increases:

BP PLC (BP): BP is Klarman's second largest 13F position and represents over 14% of the U.S. long portfolio. The stake was increased by over 40% this quarter indicating a strong bullish bias. The position was first established in Q2 2011 when the price-per-share varied between $42 and $46 and was decreased by ~22% last quarter at prices between $42 and $48. The about-turn this quarter is very significant. The purchases this quarter happened at prices between $36.46 and $45.34. The stock currently trades at around $42.

Hewlett Packard Co. (HPQ): HPQ is sized very similar to BP, at around 14% of the U.S. long portfolio. The stake was increased by over 55% this quarter indicating a very strong bullish bias. The stake was first established in Q4 2011 at a price-range between $22 and $37 and was trimmed marginally last quarter. The stake increase this quarter happened when the price-per-share varied between $19.36 and $25.25. The stock currently trades at the low end of that range at $19.62. For investors attempting to clone Klarman's positions, HPQ is a very good position to consider.

Idenix Pharmaceuticals (IDIX): IDIX is a ~2.7% of the U.S. long portfolio stake that was built-up over the last several quarters. It is a very volatile stock and the price fluctuated between $4.5 and $15 during the period of the stake acquisition. During Q2 2012, the position was increased by over 20% when the share price varied between $7.39 and $10.82. The stock currently trades at around $8.10, near the low end of his most recent purchase. The significant stake increase over several quarters indicates a clear bullish bias.

Allied Nevada Gold (ANV): ANV is a ~3.7% of the U.S. long portfolio position that was increased by around 25% this quarter. The position was first established in Q1 2011 at prices between $24 and $35 and has since been periodically increased. The stake increase this quarter happened at prices between $23.82 and $32.78. The stock currently trades at around $27.20. Klarman is bullish on gold and also has a position in Novagold Resources, another small-cap gold stock.

Novagold Resources Inc: NG is a 2.5% stake built up over the last three quarters at prices between $6 and $12. NG currently trades at $4.29, well below the price-range Klarman could have bought it at, even after accounting for the spin-off of Novacopper. NG had a setback recently when Barrick Gold (ABX), the joint-venture partner for its Donlin Gold project indicated it would not make a decision to construct at this time. It may have been stating the obvious as the permitting process for the mine is expected to take another four years. Nevertheless, the stock price corrected significantly after that news hit the wires. NG is a good stock to consider for investors on the lookout for a position that is leveraged to higher gold prices.

Stake Decreases:

None.

The rest of the portfolio remained steady during the quarter:

Theravance Inc (THRX), Microsoft Corporation (MSFT), News Corporation (NWS), and Viasat (VSAT): These four are large positions that account for between 5% and 15% of the U.S. long portfolio each. News Corporation is Klarman's largest 13F position with the Class A and B shares combined accounting for around 15% of the portfolio. VSAT accounts for over 10% of the portfolio while THRX stands at around 8.5%. The large position sizes and the fact that they were kept steady this quarter indicates a bullish bias. The stocks are trading well above Klarman's cost-basis on them and so investors attempting to follow his trades will have to wait for better entry points.

Syneron Medical Ltd. (ELOS), Aveo Pharmaceuticals Inc. (AVEO), and Enzon Pharmaceuticals Inc. (ENZN): These are positions in the small-cap pharmaceuticals space, each accounting for less than 2% of the U.S. long portfolio. The long-term nature of these positions indicates a bullish bias.

Alliance One International (AOI), Central Pac Financial Corp. (CPF), Ituran Location and Control (ITRN), and Sycamore Networks (OTC:SCMR): These are very small positions (<1% of the U.S. long portfolio) that were kept steady this quarter. As the position sizes are very small, they do not indicate a clear bias.

The spreadsheet below highlights changes to Klarman's U.S. stock holdings in Q2 2012:

(click to enlarge)

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 2012.

Source: Tracking Seth Klarman's Baupost Group Holdings - Q2 2012 Update