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Seth Klarman Is Top-Performing Guru for First Half 2014

July 05, 2014 | About:
Holly LaFon

Holly LaFon

249 followers

After making a $1 billion gain on Idenix Pharmaceuticals Inc. (IDIX) and his stock picks of the past six months on average gaining 60.8% in the first half of the year compared to about 6% for the S&P 500, Seth Karman resoundingly leads GuruFocus’ scoreboard.

Seth Klarman (Trades, Portfolio), founder of $27 billion Boston-based Baupost Group, has a strictly value strategy wherein he seeks a large margin of safety and often picks “cigar-butt” companies, which is working beautifully this year. Three of his new first-quarter stocks have appreciated more than 50% from the quarter’s average price. Two of three of his fourth quarter 2013 picks are up 26% and 58% since he bought.

But Klarman isn’t optimistic about markets overall. He wrote in his 2013 annual letter to investors:

“A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix (NFLX) and Tesla (TSLA). The overall picture is one of growing risk and inadequate potential return almost everywhere one looks. There is a growing gap between the financial markets and the real economy.”

His highly publicized investment in Idenix he purchased at an average price of $6 per share, making steady buys since the second quarter of 2011.

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Idenix is the biopharmaceutical company developing treaments for human viral diseases, specifically hepatitis C. It has already successfully discovered treatments for hepatitis B and HIV/AIDS.

The company has three HCV drug candidates in clinical development: IDX21437, IDX21459 and samatasvir. It also has several in development, with two investigational candidates receiving “Breakthrough Therapy” designation from the U.S. Food and Drug Administration.

On June 9, Idenix’s share price shot up when it announced that Merck would acquire the company at a significantly higher valuation than its share price. Merck (MRK) agreed to pay $24.50 per share for Idenix, valuing the company at $3.85 billion.

It was particularly fortuitous for Klarman, whose Baupost had in January had acquired 16.4 million additional shares of the company through a registered direct offering.

Idenix’s share price:

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RF Micro Devices (RFMD) is Klarman’s other top contributor, having gained about 61% since he acquired 6,585,000 shares in the first quarter, making it 1.3% of his portfolio.

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RFMD is a company that makes semiconductor components, for use in cellular handset, wireless, broadband and aerospace and defense. On Feb. 24, the company announced it would merge with TriQuint, another semiconductor company, in an all-stock transaction that would create a combined company with more than $2 billion in revenues and create at least $150 in cost synergies. The transaction is slated to close in the second half of 2014.

Some of Klarman’s other recently purchased stocks have yet to see such leaps. Keryx Biopharmaceuticals Inc. (KERX), for instance, has gained only 7% from his average purchase price of $15 in the first quarter. Klarman purchased 6,310,850 shares of the company, giving it a 2.6% space in his portfolio.

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Keryx is focused on the acquisition and development of drugs for the treatment of cancer and renal disease. It is currently working on the approval of Zerenex, which it could launch in the third quarter, pending FDA approval.

Keryx has $155.1 million in cash on its balance sheet as of March 31, 2014, compared to $55.7 million at Dec. 31, 2013. The stock has a P/B of 10.2, P/S of 135.1, and its price has reached a five-year high.

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For more of Seth Klarman (Trades, Portfolio)’s stocks, visit his portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here!


Rating: 4.5/5 (4 votes)

Voters:

Comments

kfh227
Kfh227 premium member - 2 weeks ago

Wow, I saw IDEX but from my 15 minutes of reserach couldn't figure out why. I guess I should have spent more time researching it.

Might be a good time to blindly buy what Klarman buys.

rgarga
Rgarga - 2 weeks ago

Yeah but would love to know what his returns have been over the five years in aggregate. Picks did not seem to have done well per my review before this quarter but would like to see. Thank you.

mocheng
Mocheng premium member - 2 weeks ago

Klarman made a killing with Idenix, from all the data I researched, this is a high risk stock. Seems like he is very confident that this company will be bought out eventually at a high price.

Bradlewski
Bradlewski premium member - 1 week ago

Idix in my mind was not a high risk. The moat was grossly undervalued. I bought in at $3.5 sold 50% of my position at $7 then, loaded up again when it dipped below $5.

And NO, I did not expect it to go to $24.5. I put it at $15 in 2yrs or less. Was even planning on submitting a GURU article for the contest. Then, I went on vacation and read the headlines. Looks like another year of capital gains. Hate it when that happens

AshishGupta
AshishGupta premium member - 1 week ago

LUCK.

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