Seth Klarman (Trades, Portfolio) is an investor from America who founded the Baupost Group. The Baupost Goup is a private investment partnership and hedge fund. The Baupost Group has made over 20% annualized gains over the past three decades. Seth Klarman (Trades, Portfolio) is known for being the author of a book on value investing called Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.
Unlike many popular hedge fund managers, Klarman’s approach to investing is more conservative and unconventional. Seth Klarman (Trades, Portfolio)’s investment strategy is to identify value investments that have a built-in margin of safety. Klarman mainly invests in companies if he is certain that the investment will not lose much value. His investment style views not losing money just as important as making money.
Klarman has stated that his investment strategy is very uncommon. To value invest like him “it’s natural. For a lot of people it’s fighting human nature.” He also looks past the stock price and says, “If you can remember that stocks aren't pieces of paper that gyrate all the time, [that] they are fractional interests in businesses, it all makes sense." Moreover, he claims that "value investors have to be patient and disciplined, but what I really think is you need to not be greedy," and “almost every financial blowup is because of leverage." Investment gurus such as David Tepper (Trades, Portfolio) who rely heavily on leverage have the opposite opinion on leverage than Klarman. Tepper believes that using leverage is very useful in maximizing returns while Klarman also believes that is true but also will magnify the loss which can lead to a “financial blow up.”
Seth Klarman (Trades, Portfolio) is known to idle his cash until a stock has fallen below any intrinsic value. For example, when the dot com bubble burst is when Klarman finally began to invest instead of during it.
Stocks that Seth Klarman (Trades, Portfolio) keeps buying
No. 1: Cheniere Energy Inc (LNG, Financial), weightings: 15.6% - 11,199,030 shares
Cheniere Energy Inc, a Delaware corporation, is a Houston-based energy company engaged in LNG-related businesses. Cheniere Energy Inc has a market cap of $15.8 billion; its shares were traded at around $66.70 with and P/S ratio of 55.60.
World trade in liquefied natural gas has more than tripled over the past three years. In addition, the market for LNG is expected to expand rapidly. Cheniere Energy is deeply rooted in the LNG market. Cheniere Energy operates in both the transportation and development of LNG. Klarman has increased his holding in Cheniere Energy because it is a cheap, low-risk way to profit from the liquefied natural gas boom. Klarman’s investment in LNG is reflective of his investment ideology. He views the price he paid for LNG as a safe investment and expects it to grow with the market. BTIG has given Cheniere Energy a buy rating with a target price of $100.
Cheniere Energy announced on Nov. 11, 2014, the sale of two convertible payable-in-kind notes to fund the development of the company’s new LNG project in Corpus Christi. The two transactions provided Chieniere Energy with $2.5 billion to finance the project.
Seth Klarman (Trades, Portfolio) owns 11,199,030 shares of LNG, valued as $896 million as of Sept. 30, 2014, which accounts for 15.6% of his equity portfolio. Seth Klarman (Trades, Portfolio) added his positions in the June 30, 2014 quarter by 5.79%, again in the Sept. 30, 2014 quarter by 87.03%.
No. 2: Keryx Biopharmaceuticals Inc (KERX, Financial), weightings: 4.4% - 18,300,000 shares
Keryx Biopharmaceuticals, Inc. is a biopharmaceutical company, focusing on the acquisition, development, and commercialization of pharmaceutical products for the treatment of renal disease in the United States. Keryx was incorporated in Delaware in October 1998. Keryx Biopharmaceuticals Inc has a market cap of $1.41 billion; its shares were traded at around $15.37 with and P/S ratio of 139.30.
Klarman has been increasing his investments in pharmaceutical stocks over the past years. KERX has had one of its recent drugs approved by the FDA. However, the FDA’s approval also came with safety warnings causing KERX stock to drop nearly 10% the next five days. The safety warnings may have caused investor distrust in the company; however, Klarman has overlooked that and realized that the stock price that was paid did not pose much risk and that the market as well as the company stock would continue to go up in time.
KERX has recently had its target price lifted by Maxim Group to $32 from $26. KERX one year low is $11.53 and high is $18.48. There have been controversies between analysts over the future performance of the stock. Analysts at FBR Capital markets have lowered their target price from $14 to $12 while analysts at Roth Capital and Oppenheimer have positive ratings and impressions.
Seth Klarman (Trades, Portfolio) owns 18,300,000 shares of KERX, valued as $252 million as of Sept. 30, 2014, which accounts for 4.4% of his equity portfolio. Seth Klarman (Trades, Portfolio) added his positions in the June 30, 2014 quarter by 67.01%, again in the Sept. 30, 2014 quarter by 73.62%.
No. 3: PBF Energy Inc (PBF, Financial), weightings: 3% - 7,145,418 shares
PBF Energy Inc is a petroleum refiner and supplier of petroleum products. The company is a Delaware corporation incorporated on Nov. 7, 2011. PBF Energy Inc has a market cap of $2.63 billion; its shares were traded at around $28.40 with a P/E ratio of 6.80 and P/S ratio of 0.08. The dividend yield of PBF Energy Inc stocks is 4.30%.
The quarter’s revenue growth of 8.3% compared to last year’s same quarter and has exceeded the industry average of 6.5%. This growth in revenue seems to have boosted the earnings per share of PBF. Moreover, the debt-to-equity ratio is lower than industry at .71. This means that PBF is doing well in balancing and managing its debt. Recently TheStreet Ratings has moved its sell position to a hold because of the company’s improved performance.
On Dec. 2, 2014, PBF Energy announced that it will sell its Toledo Storage Facility, or Tank Farm, for a total consideration of $150 million to PBF Logistics. This benefits PBF Energy because the company gains additional cash and resources to pursue growth opportunities and to return value to its shareholders.”
Seth Klarman (Trades, Portfolio) owns 7,145,418 shares of PBF, valued as $171 million as of Sept. 30, 2014, which accounts for 3% of his equity portfolio. Seth Klarman (Trades, Portfolio) added his positions in the June 30, 2014 quarter by 3.3%, again in the Sept. 30, 2014 quarter by 27.7%.
Stock that Seth Klarman (Trades, Portfolio) keeps selling
No. 1: Theravance Inc (THRX, Financial), weightings: 5.9% - 19,815,983 Shares
Theravance Inc., is a biopharmaceutical company and was incorporated in Delaware in November 1996 under the name Advanced Medicine, Inc. Theravance Inc has a market cap of $1.5 billion; its shares were traded at around $12.98 with and P/S ratio of 327.50. The dividend yield of Theravance Inc stocks is 3.70%.
Third-quarter earnings for Theravance have been weak as well as its quarterly dividend not being sustainable. Theravance has a heavy dependence on the performance of its only approved drug VIBATIV, telavancin. Theravance dropped 5.82% on Nov. 10, 2014, and was rated one of Russell 2000’s “biggest losers.” Analysts at Leerink partners have recently downgraded THRX from outperform to market perform and set a year price target at $17. Analyst skepticism can affect shareholder confidence in the company.
Seth Klarman (Trades, Portfolio) owns 19,815,983 shares of THRX, valued as $339 million as of Sept. 30, 2014, which accounts for 5.9% of his equity portfolio. Seth Klarman (Trades, Portfolio) reduced his positions in the Jun. 30, 2014 quarter by 1.5%, again in the Sept. 30, 2014 quarter by 2.84%.