Seth Klarman (Trades, Portfolio) recently released the portfolio updates for The Baupost Group’s second quarter of 2021, which ended on June 30.
Klarman is the portfolio manager of The Baupost Group, a hedge fund company founded by Harvard Professor William Poorvu in 1982. Based in Boston, the long-only fund invests in a wide range of securities, from common stock to liquidations and distressed debt. Klarman holds that a solid investing strategy should never ignore risks in the pursuit of absolute returns, which is one of the three pillars of his investing philosophy. The other two are to analyze losses before gains and to forget about macro conditions, focusing only on the investment idea.
Following the above criteria, Baupost’s top buys for the quarter were Shaw Communications Inc. (SJR, Financial) and Micron Technology Inc. (MU, Financial), while its biggest sells were Fox Corp. (FOXA, Financial) and eBay Inc. (EBAY, Financial).
Shaw Communications
The firm established a new stake of 7,530,807 shares in Shaw Communications (SJR, Financial), impacting the equity portfolio by 1.77%. During the quarter, shares traded for an average price of $28.78.
Shaw Communications is a Canadian telecommunications company headquartered in Alberta. It provides telephone, internet, television and mobile services in Alberta and British Columbia and satellite television throughout Canada.
On Aug. 17, shares of Shaw Communications traded around $28.93 for a market cap of $14.48 billion. According to the GuruFocus Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. While the cash-debt ratio of 0.08 is lower than 82% of industry peers, the Piotroski F-Score of 7 out of 9 is typical for a financially stable company. The return on invested capital is typically higher than the weighted average cost of capital, indicating the company is creating value for shareholders.
Micron Technology
The firm added 1,740,000 shares, or 32.08%, to its investment in Micron Technology (MU, Financial) for a total of 7,163,416 shares. The trade had a 1.20% impact on the equity portfolio. Shares traded for an average price of $84.58 during the quarter.
Headquartered in Boise, Idaho, Micron is a semiconductor company that produces a variety of computer memory and data storage products. It markets its consumer products under the brand names Crucial and Ballistix.
On Aug. 17, shares of Micron traded around $70.22 for a market cap of $79.32 billion. According to the GF Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The Piotroski F-Score of 8 out of 9 and Altman Z-Score of 5.42 show a fortress-like balance sheet. The operating margin and net margin have been on an uptrend in recent years to their current values of 30.34% and 23.38%.
Fox
The firm sold all 7,610,818 of its shares of Fox (FOXA, Financial), which had a -2.19% impact on the equity portfolio. During the quarter, shares traded for an average price of $37.49.
Fox represents the operations of 21st Century Fox that were not acquired by Disney (DIS) back in early 2019. While Disney purchased Fox’s entertainment business, including the 21st Century Fox name, Fox consists of the broadcasting, TV stations, news, business and sports segments.
On Aug. 17, shares of Fox traded around $36.86 for a market cap of $20.40 billion. Based on the Peter Lynch chart, the stock is trading below its intrinsic value and its median historical valuation.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 5 out of 10. The interest coverage ratio of 7 is on the low end, but the Altman Z-Score of 2.51 indicates the company is not likely at risk of bankruptcy. The ROIC is typically higher than the WACC, indicating the company is creating value.
EBay
The firm reduced its holding in eBay (EBAY, Financial) by 3,433,800 shares, or 18.74%, leaving a remaining holding of 14,890,623 shares. The trade had a -1.68% impact on the equity portfolio. Shares traded for an average price of $62.67 during the quarter.
Based in San Jose, California, eBay is an e-commerce company that facilitates consumer-to-consumer and business-to-consumer sales through its website. Once famous for its auction listings, this type of selling is now all but gone from the platform, except in the case of rare items.
On Aug. 17, shares of eBay traded around $72.99 for a market cap of $47.51 billion. Based on the Peter Lynch chart, the stock is trading above its intrinsic value and its median historical valuation.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 1.84 and Piotroski F-Score of 7 out of 9 indicate the company is financially stable. The three-year revenue per shares growth rate is 15.3%, while the three-year Ebitda per share growth rate is 25.9%.
Portfolio overview
As of the quarter’s end, the firm held shares in 58 common stocks valued at a total of $12.30 billion. The turnover for the quarter was 5%.
The top holdings were Liberty Global PLC (LBTYK, Financial) with 11.87% of the equity portfolio, Intel Corp. (INTC, Financial) with 9.93% and eBay with 8.50%. In terms of sector weighting, the firm was most invested in technology and communication services, followed distantly by financial services, consumer cyclical and health care.
See also: According to GuruFocus Real-Time Picks, a Premium feature, Baupost bought shares of the newly-public Outbrain Inc. (OB) on July 31. Read more here.
