Seth Klarman (Trades, Portfolio), manager of the Baupost Group, disclosed this week that his top five buys for the first quarter were Alphabet Inc. (GOOG, Financial)(GOOGL, Financial), Facebook Inc. (FB, Financial), HD Supply Holdings Inc. (HDS, Financial), Energy Transfer LP (ET, Financial) and XPO Logistics Inc. (XPO, Financial).
Klarman received an economics degree at Cornell University and an MBA at Harvard University. The author of “Margin of Safety” invests in a wide range of securities, ranging from fairly traditional value stocks to more esoteric investments like distressed debt, liquidations, foreign equities and bonds.
According to an August 2017 CNBC article, Klarman has three underlying pillars of his investing approach: “analyze the potential for loss before gain, absolute over relative returns, and forget macro investing, instead focus on individual investment ideas.” Klarman also warned that investing is not just about producing absolute returns, but also about paying attention to the risks incurred to generate return.
According to the latest ADV form, Baupost manages approximately $30.2 billion in assets, with an equity portfolio value of approximately $6.75 billion. The equity portfolio contains 32 stocks, with a turnover ratio of 25% and eight new positions. The top three sectors in terms of weight are communication services, technology and consumer cyclical, representing 43.30%, 16.12% and 14.49% of the portfolio.
Alphabet (Google)
Klarman purchased 300,500 Class C shares of Google parent Alphabet, giving the position 5.18% equity portfolio weight. Shares averaged $1,361.82 during the first quarter.
The Mountain View, California-based company operates a wide range of interactive media platforms, including Google Search, Google Play and YouTube. GuruFocus ranks Alphabet’s financial strength 8 out of 10, driven by a strong Altman Z-score of 10.29 and debt ratios that outperform over 63% of global competitors.
Google’s profitability ranks 10 out of 10 on positive investing signs like operating margins outperforming over 80% of global competitors and a GuruFocus business predictability rank reaching four stars out of five.
Gurus with large holdings in Google include Dodge & Cox, PRIMECAP Management (Trades, Portfolio) and Al Gore (Trades, Portfolio)’s Generation Investment Management.
Klarman purchased 1,984,000 shares of Facebook, giving the stake 4.91% weight in the equity portfolio. Shares averaged $199.62 during the first quarter.
The Menlo Park, California-based social media giant announced on Friday that it plans to incorporate GIPHY, the visual expression and creation platform, into Instagram. GuruFocus ranks Facebook’s financial strength 8 out of 10 and profitability 9 out of 10 on several positive investing signs, which include a strong Altman Z-score of 12.94, debt ratios that outperform over 60% of global competitors, expanding operating margins and a return on assets that outperforms over 88% of global interactive media companies.
Robert Olstein (Trades, Portfolio)’s firm also established a new position in Facebook during the quarter.
HD Supply
Klarman purchased 6,217,930 shares of HD Supply, giving the holding 2.62% weight in the equity portfolio. Shares averaged $37.50 during the first quarter.
The Atlanta-based company engages in industrial distribution services in facilities and home improvement maintenance, repair, operations and specialty construction. GuruFocus ranks HD Supply’s profitability 7 out of 10 on several positive investing signs, which include expanding operating margins and returns that are outperforming over 91% of global competitors.
Energy Transfer
Klarman purchased 12,105,005 shares of Energy Transfer, giving the position 0.83% weight in the equity portfolio. Shares averaged $10.77 during the first quarter.
The Dallas-based company owns a large platform of crude oil, natural gas and natural gas liquid assets primarily in Texas and the U.S. midcontinent region. GuruFocus ranks Energy Transfer’s profitability 7 out of 10: Even though the company’s three-year revenue decline rate of 11.3% underperforms 76.42% of global competitors, operating margins are expanding and outperforming 70% of global oil and gas companies.
XPO Logistics
Klarman purchased 845,877 shares of XPO Logistics, giving the position 0.61% weight in the equity portfolio. Shares averaged $77.86 during the first quarter.
GuruFocus ranks the Greenwich, Connecticut-based transportation and logistics company’s profitability 6 out of 10: Although it has a high Piotroski F-score of 7 and a return on equity that outperforms over 80% of global competitors, operating margins are underperforming approximately 60% of global logistics companies.
Disclosure: No positions.
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