Seth Klarman Buys PG&E, Doubles Down on Pioneer Natural Resources

Also sells Express Scripts

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May 14, 2018
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Seth Klarman (Trades, Portfolio), a widely followed value investor and author, disclosed Monday that he purchased one stock, PG&E Corp. (PCG, Financial), and doubled his stake in Pioneer Natural Resources Co. (PXD, Financial) in the first quarter.

Klarman’s portfolio at his firm, Baupost Group, lists 31 stocks with an aggregate value of $10.3 billion and quarter-over-quarter turnover of 9%. The most represented sectors are energy at 25% of stocks, health care at 22.5% and consumer cyclical at 21.6%.

As discussed in his hard-to-find book, “Margin of Safety,” Klarman buys stocks trading at large discounts to his estimate of their intrinsic value. The strategy has earned him annual returns of 16.4% since its founding in 1982 through 2015, CNBC reported. He dismissed the cryptocurrency trend in his fourth-quarter letter, CNBC also said.

The portfolio of long stocks composes just one aspect of Klarman’s $32 billion hedge fund. As he said in a 2011 letter:

"But in a field where the vast majority of our competitors spend their time looking exclusively at equities to buy or sell short, we are truly fortunate to have a broad mandate and stable, long-term oriented client base that allows us to emphasize in our portfolio more complex, less liquid, and less widely analyzed investments, such as distressed debt--and the ability to concentrate our capital in the areas of greatest opportunity, which inevitably evolve over time."

First-quarter 2018 buys

PG&E Corp. (PCG, Financial)

Klarman purchased 3,149,972 shares of PG&E Corp., giving it 1.35% portfolio space. The stock’s first-quarter share price averaged $42.

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PG&E Corp. has a market cap of $22.33 billion; its shares were traded around $43.23 Monday with a P/E ratio of 14.74 and P/S ratio of 1.32. The trailing 12-month dividend yield of PG&E Corp. stocks is 3.57%. PG&E Corp. had an annual average earnings growth of 3.50% over the past five years.

Pioneer Natural Resources Co. (PXD, Financial)

Klarman purchased 2 million shares of Pioneer Natural Resources, increasing the position by 100% to 4 million shares. The holding occupies 6.68% of the portfolio. The stock had a first-quarter average trading price of $176.

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Pioneer Natural Resources Co. has a market cap of $34.36 billion; its shares were traded around $201.62 with a P/E ratio of 32.84 and P/S ratio of 5.42. The trailing 12-month dividend yield of Pioneer Natural Resources Co. stocks is 0.10%. The forward dividend yield of Pioneer Natural Resources Co. stocks is 0.16%. Pioneer Natural Resources Co. had an annual average earnings growth of 1.40% over the past 10 years.

Novagold Resources Inc. (NG, Financial)

Klarman purchased 2,724,145 shares of Novagold Resources, boosting the stake 25.4% to 13,467,145 shares. The holding represented 0.57% of the portfolio. The stock price averaged $4 per share for the quarter.

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Novagold Resources Inc. has a market cap of $1.56 billion; its shares were traded around $4.92 Monday.

Sales

Klarman also sold out of: Sunrun Inc. (RUN, Financial), Express Scripts Holding Co. (ESRX, Financial) and Cascadian Therapeutics Inc. (CASC, Financial).

Sunrun Inc. (RUN, Financial)

Klarman sold 2,848,082 shares of Sunrun Inc., closing out the position. The stock’s price averaged $7 in the fourth quarter, below his quarterly average buy price of $10.

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Sunrun Inc. has a market cap of $1.19 billion; its shares were traded around $10.89 Monday with a P/E ratio of 8.57 and P/S ratio of 2.08.

Express Scripts Holding Co. (ESRX, Financial)

Klarman sold 2,306,456 shares of Express Scripts Holding Co., which had an average price of $76 for the quarter, above his quarterly average buy price of $66.

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Express Scripts Holding Co. has a market cap of $41.38 billion; its shares were traded around $73.67 with a P/E ratio of 9.25 and P/S ratio of 0.42. Express Scripts Holding Co. had an annual average earnings growth of 19.40% over the past 10 years. GuruFocus rated Express Scripts Holding Co. the business predictability rank of 3-star.

Cascadian Therapeutics Inc. (CASC, Financial)

Klarman sold 8,721,088 shares of Cascadian Therapeutics Inc., which had an average first-quarter price of $8, above his average quarterly buy price of $5.

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Cascadian Therapeutics Inc. has a market cap of $554.278 million; its shares were traded around $10.02 Monday.

See Seth Klarman (Trades, Portfolio)’s portfolio here.