Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today let's look at investing giant Seth Klarman, who founded the Baupost Group hedge fund company 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, not finding sufficient bargains.
Why should you look at Baupost's moves? Well, according to the folks at GuruFocus.com, it has averaged gains of close to 20% annually since its inception, far outstripping the S&P 500.
The company's reportable stock portfolio totaled $4 billion in value as of June 30.
So what does Baupost's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Micron Technology (NASDAQ:MU) and Taiwan-based semiconductor testing specialist ChipMOS Technologies (NASDAQ:IMOS). Micron is sitting near a 52-week high and has more than doubled in value over the past year. Still, its forward P/E is near 10, suggesting it has more room to grow. Micron's purchase of Japanese manufacturer Elpida has boosted its capacity, its pricing power, and its relationship with Apple. It also generates cash that can be used for share buybacks or to reinstate its dividend (after 17 years!). Bears worry about competition, the industry's cyclicality, and Micron's debt. Micron beat expectations for both revenue and earnings in its last quarter and is downsizing its workforce by about 5%. Analysts at R.W. Baird recently downgraded the stock on supply chain concerns, but other researchers, such as RBC Capital, are bullish, expecting strength in memory chip prices.
ChipMOS recently reported second-quarter results that featured revenue up 11% over the year-ago period, and earnings per share roughly flat, and rising gross margins. Its debt has been shrinking in recent years, too. ChipMOS looks appealing to some, with its forward P/E near 10 -- though it was even cheaper earlier in the year. Its stock has averaged 7.4% annual growth over the past decade.
Among holdings in which Baupost Group increased its stake were BP and biopharmaceutical company Theravance (UNKNOWN:THRX.DL). Theravance gave bulls a boost with news that it's reintroducing its injectable antibiotic Vibativ (telavancin) in U.S. markets. Meanwhile, its lung-disease drug Breo Ellipta has received FDA approval and will be on the market soon – enjoying a temporary advantage as a competing product from Forest Labs has been delayed.
Baupost Group reduced its stake in companies such as Oracle and digital entertainment specialist Rovi (NASDAQ:ROVI). It has been having a tough year, seeing its shares crushed repeatedly on news of weaker-than-expected revenue and lowered expectations. Rovi has been selling off some of its consumer-oriented businesses, such as Roxio, and suffered a setback when the U.S. International Trade Commission ruled against it, saying that Netflix and Roku didn't infringe on its patents. Rovi is appealing that decision.
Finally, Baupost's biggest closed positions included Elan (UNKNOWN:UNKNOWN) and News Corp. Ireland-based biotech company Elan is being bought by Michigan-based drug company Perrigo for $8.6 billion. One benefit for Perrigo will be headquartering the new company in Ireland, which will cut its tax rate from around 30% to around 17%. Elan had previously been pursued by Royalty Pharma, whose offers had been deemed too low. It has also been in the news as a stock that investors at the scandal-ridden hedge fund SAC Capital allegedly traded in, with insider information. Generic-drug specialist Perrigo's recently ended fourth quarter featured revenue up 16% and earnings up 12%. It has experienced some labeling problems with infant formula in China and has been facing competitive threats such as a major retailer promoting name brands.
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, and 13F forms can be great places to find intriguing candidates for our portfolios.