Seth Klarman’s Baupost Group continues its move into the healthcare sector asevidenced by the latest Q2 13F-HR filing:
- Baupost opened big positions in UnitedHealth Group (UNH) and Liberty Media. The UNH position complements last quarter’s WLP position, which was augmented 24% in Q2. Additionally, by my numbers, they staked a huge position in PDL Biopharma (PDLI), with over 10% of shares outstanding. As I’ve mentioned before, the healthcare sector looks cheap but it is outside my circle of competence, hence I’ve opened no positions. I feel especially uncomfortable with the managed-care [HMO] companies since a) they are not as obvious as pharma companies in understanding what they do and b) some signs point toward universal healthcare eventually. However, Bruce Berkowitz argues that the government, even if we move toward universal coverage, will simply write the check and outsource the management to the HMOs. He knows a lot more about this industry (and many others!) than I do, so if these stocks drop back down to previous lows, it may be the first time I open a “copycat” position. These companies generate copious cash-flow levels and on that basis, are very cheap.
- No other major shake-up in the holdings that I can see. They divested the AC Moore (ACMR) position, which was inscrutable to me. Outside of Warren Buffett, Seth Klarman could be the best value investor on the planet but it is interesting to note how different his approach is from other renowned value investors. Whereas most others regurgitate Buffett’s “simple business” approach, Klarman actively seeks out complexity in his investments on the premise that it narrows the competition as most people simply move on to less complicated opportunities. This helps explain why “copycat” activity seems less pronounced with Baupost than with other famous managers, despite Klarman’s stellar record.
Meryl Witmer’s filing reveals a continued contrarian focus on construction flooring products:
- Witmer Asset Management opened 2 new positions: Armstrong World Industries (AWI) and Interface, Inc. (IFSIA). Both companies make flooring products (carpet, tiling, etc.). This falls in line with her big bet on Mohawk Industries (MHK), which is the largest position in her 13F filing (keep in mind, these are US-listed stocks only). These companies, evened out over a full cycle, are strong cash-generating businesses with moderate capital requirements. You can read her MHK thesis here in the Barron’s Roundtable.
- Other than MHK and Berkshire Hathaway (BRK.A), Witmer didn’t add significantly to any other positions and looks to be liquidating Texas Instruments (TXN) and Navistar International (NAV).
Marty Whitman’s Third Avenue Management combines several funds into its 13F-HR:
- Whitman and crew are sticking by their financials with big re-ups in Ambac (ABK) and Crystal River Capital (CRZ) as well as new positions in CIT Group Preferreds (CIT). Anyone who has followed Whitman knows that he is a big fan of financials and views financial earthquakes as buying opportunities. So Third Avenue is running their financials playbook right now on the premise that it’s never really “different this time.” We’ll see how it plays out.
- Third Ave also opened up a position in a livestock operator out of Mexico, Industrias Bachoco (IBA). The numbers in the spreadsheet look all wrong so my script probably messed up somewhere in there. A quick look shows only 50M ADRs outstanding in a company with traditionally strong cash flows and pratically no debt. Probably worth a look but beware the low trading volume.
You can find other 13F filing spreadsheets here.