Here's What 1 of the Best Investors Is Buying

At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And funds that aren't always in lockstep with the broader market can be a particularly valuable source of insight.

Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets.

Q3 2011 update
Baupost Group is a hedge fund company founded by Seth Klarman back in 1982. Klarman is a successful investor with a lot to teach us. He sticks to his value-investing principles so much that at times he has a large chunk of his assets in cash due to not finding sufficient bargains.

Why should you look at Baupost's moves? Well, according to the folks at GuruFocus, it has averaged gains of close to 19% annually since its inception, far outstripping the S&P 500.

The total market value of Baupost Group's disclosed equity holdings as of September 30, 2011 -- the latest quarter for which data is available -- was $3 billion across 22 holdings. The company's 10 largest positions and associated changes in number of shares held as of Sept. 30, 2011 were:

BP (NYSE: BP  ) : Increased 149.8%.
Hewlett-Packard (NYSE: HPQ  ) : New.
ViaSat (Nasdaq: VSAT  ) : Increased 4.5%.
News Corp. (Nasdaq: NWSA  ) : Increased 10.5%.
Microsoft (Nasdaq: MSFT  ) : Unchanged.
Theravance (Nasdaq: THRX  ) : Increased 9.8%.
Allied Nevada Gold (AMEX: ANV  ) : Increased 3.6%.
PDL BioPharma (Nasdaq: PDLI  ) : Increased 68.8%.
Aveo Pharmaceuticals (Nasdaq: AVEO  ) : Increased 12.8%.
News Corp. (class B) (Nasdaq: NWS  ) : New.

The big gain in BP might be due to expected growth in cash flow and the company's success in moving away from its recent reputation as "Big Problems." Meanwhile, Hewlett-Packard has dismayed many investors with its board of directors' boneheaded moves, but it's hard not to see it as one of the market's big bargains at recent levels. PDL BioPharma suffered when Avastin, a drug for breast cancer that it had received royalties for, was dissed by the FDA , but the company remains one of our highest-rated drug stocks.

During the quarter, the Baupost Group also increased its position in Idenix Pharmaceuticals and Sycamore Networks. It sold out of two stocks entirely: CapitalSource and VOXX International. Baupost wasn't the only one selling the REIT CapitalSource -- some insiders did, as well.

Selected Q3 2011 commentary
Baupost Group has more than 37% of its assets in the technology sector, with health care and oil and gas comprising another 21% and 18% of the portfolio, respectively. The share of assets in technology and oil and gas has risen sharply in recent quarters, while financials, consumer services, and basic materials have shrunk.

Here's where the firm has been winning and losing and making new bets.

Recent winner
It's hard to find winners in the third quarter, when the S&P 500 sank by about 14%. But Idenix Pharmaceuticals stayed flat, which is actually a good performance, relatively speaking. Investors have been hopeful about the promise of the company's hepatitis C drug, which is ripe for partnership with a deeper-pocketed pharmaceutical company. Some speculate that Idenix itself might be bought out, too. The company has a two-star (out of five stars) rating at Motley Fool CAPS.

Recent loser
Satellite specialist ViaSat didn't do so well, dropping 23%. During the quarter, my Foolish colleague Seth Jayson noted that its finished goods inventory was piling up at a rate faster than sales growth. That's rarely auspicious. The company has a four-star rating in Motley Fool CAPS.

New bets
In addition to Hewlett-Packard and News Corp., Baupost also added new positions in Genworth Financial (NYSE: GNW  ) and NovaGold Resources (AMEX: NG  ) . Genworth insures mortgages, so this looks like a vote of confidence that further mortgage problems won't sink the company. Also appealing to some is the company's plan to sell off part of its business in Australia. NovaGold jumped nearly 25% in one day recently, on bullishness over its plans to sell off its copper business in order to focus more on gold. Genworth has a three-star rating at Motley Fool CAPS and NovaGold has a two-star one.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.

Looking for promising investments? Here are "5 Stocks with Explosive Potential" and "4 Stocks as Cheap as They've Ever Been."

Longtime Fool contributor Selena Maranjian owns shares of PDL BioPharma and Microsoft, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of CapitalSource and Microsoft. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 11, 2011, at 2:49 PM, rcleven wrote:

    I find your math a little suspect on BP.To make 149% if timed perfectly bought at 52 week low of 33.62 the price of the stock would have to be over it's 52 week high of 49.50 today.

  • Report this Comment On December 12, 2011, at 10:49 AM, ILuvblkwomen wrote:

    I find your reading and interpretation skills a little suspect. It's clear that the 149% is an increase in holdings not a return on investment.

  • Report this Comment On December 19, 2011, at 8:36 AM, TMFSelena wrote:

    Hi, rcleven --

    The 149.8% reflects the change in number of shares held, meaning that Baupost added a lot more shares of BP, regardless of whether it was rising or falling during that period.

    Best wishes,

    Selena

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