Seth Klarman - Baupost Group Portfolio

Seth Klarman - Baupost Group Q4 2023 Portfolio

Baupost Group, a hedge fund managed by Seth Klarman, disclosed 23 security holdings in their SEC 13F filing for the fourth quarter of 2023, with a total portfolio value of $4,585,037,000

 

 

Top 10 Holdings

Liberty Global Ltd CL C (LBTYK)

A multinational telecommunications company, Klarman might have invested in Liberty Global for its potential undervaluation and steady cash flow from a large customer base in various countries.

  • 17.2% of Portfolio
  • Recent Activity: No change reported
  • Shares: 42,311,011
  • Reported Price: $18.64
  • Value: $788,677,000 

Viasat Inc. (VSAT)

With its significant drop in current price, Baupost might see Viasat, a communications company, as a deep value play with the potential for recovery as demand for satellite and wireless services grows.

  • 9.86% of Portfolio
  • Recent Activity: No change reported
  • Shares: 16,174,839
  • Reported Price: $27.95
  • Value: $452,087,000

Liberty SiriusXM Series C (LSXMK)

This investment could be based on the steady, subscription-based revenue of SiriusXM’s satellite radio business, which has a strong consumer foothold.

  • 9.32% of Portfolio
  • Recent Activity: No change reported
  • Shares: 14,851,048
  • Reported Price: $28.78
  • Value: $427,413,000

Alphabet Inc. CL C (GOOG)

Despite reducing the position, the investment in Alphabet reflects confidence in the long-term growth of its core businesses, including search, advertising, and cloud computing.

  • 9.07 % of Portfolio
  • Recent Activity: Reduced 23.02%
  • Shares: 2,949,538
  • Reported Price: $140.93
  • Value: $415,678,000

Fidelity National Information Services (FIS)

FIS’s role in financial services technology could position it well for growth in the fintech space, which might explain Baupost’s interest despite a slight reduction in shares.

  • 8.33% of Portfolio
  • Recent Activity: Reduced 8.61%
  • Shares: 6,360,719
  • Reported Price: $60.07
  • Value: $382,088,000

Willis Towers Watson plc (WTW)

As a global advisory and brokerage firm, WTW may offer a defensive play with a stable client base and potential for growth in risk management services.

  • 8.18% of Portfolio
  • Recent Activity: No change reported
  • Shares: 1,555,667
  • Reported Price: $241.20
  • Value: $375,227,000

Warner Bros. Discovery Inc. (WBD)

The media company may be seen as undervalued, especially after the merger of WarnerMedia and Discovery, with a potential upside from synergies and a strong content library.

  • 6.26% of Portfolio
  • Recent Activity: No change reported
  • Shares: 25,235,094
  • Reported Price: $11.38
  • Value: $287,175,000

Clarivate Plc (CLVT)

Clarivate’s analytics and insights could be critical for innovation and research, making it an attractive investment with the potential for consistent growth.

  • 5.15 % of Portfolio
  • Recent Activity: Added 13.33%
  • Shares: 25,500,000
  • Reported Price: $9.26
  • Value: $236,130,000

Liberty Sirius XM Series A (LSXMA)

Similar to LSXMK, this investment likely hinges on the predictable cash flows from the satellite radio business and a solid subscriber base. 

  • 5.13% of Portfolio
  • Recent Activity: No change reported
  • Shares: 8,177,656
  • Reported Price: $28.74
  • Value: $235,026,000

CRH plc (CRH)

As a leading building materials business, CRH could be viewed as a play on global infrastructure growth and urbanization, potentially undervalued relative to its market position.

  • 5.05% of Portfolio
  • Recent Activity: No change reported
  • Shares: 3,345,543
  • Reported Price: $69.16
  • Value: $231,378,000

Seth Klarman’s Baupost Group is known for a value-driven investment philosophy that often includes a long-term, contrarian approach. Each of these investments aligns with Klarman’s known strategy of seeking out undervalued securities with the potential for a re-rating in the market. He often chooses companies with strong fundamentals that may be temporarily out of favor due to market overreactions or other transient factors.

Analyzing LBTYK from Seth Klarman's Perspective

Analyzing Liberty Global plc (LBTYK) from Seth Klarman’s perspective involves a deep dive into the fundamentals of the company, considering Klarman’s value-driven investment philosophy that focuses on buying securities at a discount to their intrinsic value with a significant margin of safety.

 

Revenue Trends:

As of February 17, 2024 Liberty Global’s revenue shows a decline over recent years with a slight uptick in the trailing twelve months (TTM). Klarman would likely scrutinize the factors leading to the -30.22% drop in 2022, assessing whether this decline is temporary or part of a longer-term trend.

Profitability Concerns:

The company has reported significant net losses, including -$4.05 billion in the TTM, which may raise red flags. However, Klarman would analyze if these losses are due to non-recurring charges or fundamental issues with the business model.

 

High Gross Margins:

The gross margin of 68.17% indicates strong potential for profitability, which Klarman may find attractive if he believes operational efficiency can improve.

Operating Cash Flow and Free Cash Flow:

Liberty Global has a positive operating cash flow of $2.17 billion and a free cash flow of $779.90 million, which are metrics Klarman values highly as they indicate the company’s ability to generate cash.

 

Debt Management:

With a debt to equity ratio of 0.91 and substantial net debt of -$14.01 billion, Klarman would carefully evaluate the company’s debt levels, considering whether the interest coverage ratio and the cash flows can comfortably service this debt.

 

Asset and Investment Valuation:

Given Klarman’s emphasis on assets, the book value per share of $50.23 compared to the market price would be of particular interest. He might also consider the EBITDA margin and EBIT margin, despite them being negative, to understand the underlying assets’ profitability.

Share Buybacks:

The buyback yield of 14.04% implies the company is returning value to shareholders through share repurchases, a strategy Klarman might appreciate if he believes the shares are undervalued.

 

Valuation Ratios:

The absence of a PE ratio due to net losses would require Klarman to look at other valuation measures. A P/FCF ratio of 9.22 might suggest that, despite the losses, the company is undervalued based on its cash flow generation capabilities.

  

Investment Thesis:

Considering the negatives, such as the profit margin and recent revenue declines, alongside the positives, like strong gross margins and free cash flow, Klarman would likely weigh whether the current market price offers a sufficient margin of safety. He would consider the company’s strategic initiatives, competitive position, and the industry’s future to determine if the intrinsic value of Liberty Global is higher than the market reflects.

 

In conclusion, from Seth Klarman’s perspective, Liberty Global could be an interesting opportunity if the company’s challenges are temporary or fixable and the underlying value of the company’s assets and cash-generating ability is deemed to be significantly higher than the current market valuation.

Who is Seth Klarman ?

1957:

Born on May 21, 1957, in New York City, USA.

1979:

Graduates from Cornell University with a degree in economics.

1979-1981:

Works as an analyst at the Mutual Shares fund.

1982:

Founding of Baupost Group: After working at several financial firms, Klarman founded Baupost Group with just $27 million in assets under management.

1991:

Publication of “Margin of Safety”: Seth Klarman authored a book titled “Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.” The book is highly regarded among value investors and became a sought-after, rare collector’s item due to its limited print run.

1995:

Klarman Becomes chair of Facing History and Ourselves, an educational organization that promotes tolerance and understanding.

2008:

Klarman is selected as lead editor of the sixth edition of Security Analysis, a seminal work on value investing by Benjamin Graham and David Dodd.

2008 Financial Crisis:

During the 2008 financial crisis, Baupost Group performed exceptionally well, achieving positive returns while many other funds suffered significant losses.

2011:

Klarman receives the Alumni Achievement Award from Harvard Business School.

2020:

Klarman is elected to the American Academy of Arts and Sciences.

Interesting Facts

Klarman is known for his deep value investing approach, focusing on undervalued assets, distressed securities, and special situations.

He values privacy and operates with a conservative approach in managing Baupost Group.

Seth Klarman is actively involved in philanthropy, supporting various causes and organizations, including education, medical research, and social services.

Klarman is often compared to value investing legends such as Warren Buffett and Benjamin Graham.

Seth Klarman's Investing Principles

The single greatest edge an investor can have is a long-term orientation

Seth Klarman

Over the long run, the crowd is always wrong

Seth Klarman

Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon

Seth Klarman

Once you adopt a value-investment strategy, any other investment behavior starts to seem like gambling

Seth Klarman

Investing is the intersection of economics and psychology

Seth Klarman

The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions

Seth Klarman
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