In this article, we discuss the 8 interesting stocks in Seth Klarman’s 2022 portfolio. If you want to skip our detailed analysis of Seth Klarman’s investment strategy and hedge fund performance, go directly to 3 Interesting Stocks in Seth Klarman’s 2022 Portfolio.
Value investor Seth Klarman is one of the most successful money-managers on Wall Street. His hedge fund Baupost Group was founded in 1982 with $27 million in startup capital, and stands at $9.3 billion in assets under management (AUM) as of the first quarter of 2022. Klarman follows the ‘value investing’ philosophy of Benjamin Graham, which consists of buying undervalued assets and holding them until they turn profitable. Since its inception, Klarman’s Baupost Group has posted an average annual return of more than 20% to its clients.
Klarman’s Best Friend: Market Volatility
In a letter to investors penned at the start of 2022, Klarman noted that the market presents a plethora of gnawing issues that many investors were sleeping on. He summarized it as such:
“We see today’s market as characterized by stretched valuations, deep complacency, and a host of looming risks.”
The investor warned that inflation, which recently reached a 41-year high in May, and rising interest rates pose a substantial threat to financial markets. He noted that investors have become complacent, with the buying trend of the last decade or so having lured many investors into making speculative bets which will blowback soon enough. Commenting on the market volatility which marked the start of 2022 and still persists to this day, Klarman called it a “value investor’s best friend,” given how the ebbs and flows of the market create opportunities for value investors with an eye for undervalued stocks.
Seth Klarman of Baupost Group
As of the end of the first quarter of 2022, Seth Klarman’s portfolio contains big names such as Alphabet Inc. (NASDAQ:GOOG), Meta Platforms, Inc. (NASDAQ:FB), and Intel Corporation (NASDAQ:INTC), but in this article, we’ll focus on the investor’s most interesting and relatively unsung stock picks.
We examined Seth Klarman’s Q1 portfolio and picked 8 stocks with interesting and unique products/services that boast significant growth prospects in the coming times.
Interesting Stocks in Seth Klarman’s 2022 Portfolio
8. Noble Corporation (NYSE:NE)
Percentage of Baupost Group’s 13F portfolio: 0.03% Value of Baupost Group’s Stake: $3.46 million Number of Hedge Fund Holders: 31
First up is Noble Corporation (NYSE:NE), a Texas-based company which provides contract drilling services to the oil and gas industry around the world through its fleet of offshore drilling units. With rising commodity prices turning the market’s attention towards the energy sector, Noble Corporation (NYSE:NE) has grown 31.67% in the last 12 months as of June 13.
According to regulatory filings for the first quarter, Seth Klarman owned roughly 105,000 shares of Noble Corporation (NYSE:NE) with a price tag of $3.46 million, which represented 0.03% of his total portfolio. Overall, investors were bullish on the company, as 31 hedge funds were long on the company shares at the end of March, as compared to 24 hedge funds in the previous quarter.
On June 1, BTIG analyst Gregory Lewis upgraded Noble Corporation (NYSE:NE) to ‘Buy’ from ‘Neutral’, with a price target of $60. The stock has gained 42% since announcing its merger with offshore drilling company Maersk Drilling in November 2021, according to the analyst, who notes that a recovery in the offshore drilling industry continues to gain momentum.
For the first quarter, Noble Corporation (NYSE:NE) missed EPS estimates by $0.20. Revenue of $210.2 million for the quarter also missed analysts’ forecasts by $25.9 million, but showed year-on-year growth of 127.44%.
Along with Alphabet Inc. (NASDAQ:GOOG), Meta Platforms, Inc. (NASDAQ:FB), and Intel Corporation (NASDAQ:INTC), Noble Corporation (NYSE:NE) is one of the most noteworthy stocks to buy now.
7. Trilogy Metals Inc. (NYSE:TMQ)
Percentage of Baupost Group’s 13F portfolio: 0.12% Value of Baupost Group’s Stake: $11.68 million Number of Hedge Fund Holders: 7
Trilogy Metals Inc. (NYSE:TMQ) is a base metals exploration firm which is developing the Upper Kobuk Mineral Projects in Alaska’s Ambler Mining District. It mines and develops copper, zinc, gold, silver, and other minerals. The firm is headquartered in Vancouver, Canada, and was known as NovaCopper Inc. up until 2016.
With 11.12 million shares worth $11.68 million, Trilogy Metals Inc. (NYSE:TMQ) represented 0.12% of Baupost Group’s total Q1 portfolio. In total, 7 hedge funds reported bullish bets on the company shares at the end of the first quarter, with a combined value of $30.45 million. This is down from 8 hedge funds a quarter earlier.
On June 13, National Bank analyst Rabi Nizami lowered the firm’s price target on Trilogy Metals Inc. (NYSE:TMQ) to C$1.75 from C$2.50 and maintained a ‘Sector Perform’ rating on the shares. In the last 12 months, TMQ shares have shed 69.42% after the U.S. Department of the Interior filed a motion to remand the final Environmental Impact Statement and suspend the right-of-way permit for the Ambler Access project, a proposed 211-mile, controlled industrial access road that would provide access to the Ambler Mining District in northwestern Alaska. This increases uncertainty around the project’s completion, although there are hopes it could kickstart again after a change in the US administration.
6. Joby Aviation, Inc. (NYSE:JOBY)
Percentage of Baupost Group’s 13F portfolio: 0.14% Value of Baupost Group’s Stake: $13.02 million Number of Hedge Fund Holders: 30
Joby Aviation, Inc. (NYSE:JOBY) is the market leader in eVTOL (electric vertical take-off and landing) technology, which aims to produce noise-less electric aircrafts which can be used to provide ride-sharing taxi services to clients. The firm recently received the FAA (Federal Aviation Administration) Part 135 certificate, putting it on track to start commercial taxi operations by 2024. Joby Aviation, Inc. (NYSE:JOBY) CEO JoeBen Bevirt recently featured in CBS’s hit show ’60 Minutes’ with Anderson Cooper, talking about the firm’s groundbreaking technology and the future it holds.
In April, Cantor Fitzgerald analyst Andres Sheppard initiated coverage of Joby Aviation, Inc. (NYSE:JOBY) with an ‘Overweight’ rating and a $10 price target. The company is competing to be among the first-to-market in air taxis and the analyst sees this as “an important advantage” which would help the firm capture market share quickly. Sheppard also noted that the company expects to price its flights at an “affordable” rate of $3-$4 per passenger mile.
30 hedge funds were bullish on Joby Aviation, Inc. (NYSE:JOBY) at the end of the first quarter, with aggregate positions worth $79.46 million. This shows a positive trend from the previous quarter where 23 hedge funds were stakeholders in the firm. Seth Klarman’s Baupost Group owned 1.96 million shares of Joby Aviation, Inc. (NYSE:JOBY) in the first quarter, worth $13.02 million and representing 0.14% of its total portfolio.
5. Archaea Energy Inc. (NYSE:LFG)
Percentage of Baupost Group’s 13F portfolio: 0.7% Value of Baupost Group’s Stake: $65.48 million Number of Hedge Fund Holders: 32
Archaea Energy Inc. (NYSE:LFG) is a renewable energy company which develops renewable natural gas by processing waste emissions from landfills. With the growing demand for energy around the globe, Archaea Energy Inc. (NYSE:LFG) stands as a unique play on the energy sector which is well-positioned to grow in the coming years.
3.12 million shares of Archaea Energy Inc. (NYSE:LFG) were reported in the Q1 portfolio of Baupost Group, with a price tag of $65.5 million and taking up 0.7% of the fund’s total portfolio. Investors were seen loading up on Archaea Energy Inc. (NYSE:LFG) stock at the end of the first quarter, where 32 hedge funds owned positions in the company, as compared to 26 hedge funds a quarter ago.
Stifel analyst Derrick Whitfield in March initiated coverage of Archaea Energy Inc. (NYSE:LFG) with a ‘Buy’ rating and a price target of $37, and placed the stock in Stifel’s Select List. He sees the company offering investors exposure and the “best vehicle to express a bullish view” on low-cost sources of renewable natural gas (RNG) with minimal financing risks. Whitfield cites the firm’s operational focus on landfill gas and its emphasis on marketing to voluntary/non-transport customers. As of June 13, shares of Archaea Energy Inc. (NYSE:LFG) have surged 18.51% in the last 12 months.
For the quarter ending March, Archaea Energy Inc. (NYSE:LFG) posted an EPS of $0.02, falling short of analysts’ expectations by $0.04. Quarterly revenue stood at $56.9 million, also below estimates by $8.9 million.
4. DigitalBridge Group, Inc. (NYSE:DBRG)
Percentage of Baupost Group’s 13F portfolio: 1.42% Value of Baupost Group’s Stake: $132.23 million Number of Hedge Fund Holders: 27
DigitalBridge Group, Inc. (NYSE:DBRG) operates as a digital infrastructure real estate investment trust (REIT) with a massive, global portfolio consisting of data centers, fiber networks, cell towers, small cells, and edge infrastructure. Seth Klarman’s stake in the company consisted of 18.36 million shares valued at $132.2 million in the first quarter, amounting to a 1.42% portion of his total portfolio. This established Baupost Group as the largest Q1 shareholder of DigitalBridge Group, Inc. (NYSE:DBRG).
On June 2, Keefe Bruyette analyst Jade Rahmani gave DigitalBridge Group, Inc. (NYSE:DBRG) a ‘Market Perform’ rating, viewing the recent share pullback as “unwarranted” and presenting a buying opportunity. She believes the company’s outlook remains favorable and that its digital transformation highlights potential for future upside based on execution, organic growth, and capital deployment.
DigitalBridge Group, Inc. (NYSE:DBRG) posted earnings per share of -$0.27 for the first quarter, falling below Street estimates by $0.24. The company raked in $257.46 million in revenue for the quarter, also missing consensus estimates by $2.84 million.
A detailed study of the Q1 database of Insider Monkey showed that 27 hedge funds held stakes in DigitalBridge Group, Inc. (NYSE:DBRG) with an aggregate value of $402 million. In contrast, 30 hedge funds were stakeholders in the firm a quarter ago.
Just like Alphabet Inc. (NASDAQ:GOOG), Meta Platforms, Inc. (NASDAQ:FB), and Intel Corporation (NASDAQ:INTC), DigitalBridge Group, Inc. (NYSE:DBRG) is on the radar of investors on Wall Street.
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Disclosure. None. 8 Interesting Stocks in Seth Klarman’s 2022 Portfolio is originally published on Insider Monkey.