Seth Klarman (Trades, Portfolio) founded The Baupost Group in 1983, which landed him as one of Forbes’ Highest-Earning Hedge Fund Managers in 2017. His strategy covers a wide range of investments, from traditional value stocks to distressed debt, liquidations and foreign bonds. Klarman is happy to hold cash when investment opportunities are scarce and had almost half of his portfolio on the sidelines in 2005 and 2006. He warns investors against focusing on returns while ignoring the risks that may be incurred investing.
Based on Klarman’s investment philosophy, he has five holdings that have generated a total estimated gain in excess of 70% in less than a decade. These holdings include eBay Inc. (EBAY, Financial), Micron Technology Inc. (MU, Financial), Veritiv Corp. (VRTV, Financial), Trilogy Metals Inc. (TMQ, Financial) and Translate Bio Inc. (TBIO, Financial).
EBay
The guru’s third-largest holding was established in the second quarter of 2014 with the shares trading at an average price of $21.80 during the quarter. The holding saw several large additions in the next two quarters, but was sold in the fourth quarter of 2015. It was then re-established at the end of 2018 when shares traded at an average price of $29.29. Since then, the holding ballooned to a peak of 32.08 million shares and has been pulled back to 14.89 million shares as of the latest quarter. Overall, Klarman has purchased shares at an average price of $30.93 per share, landing him at a total estimated gain on the holding of 71.55%.
EBay operates one of the largest e-commerce marketplaces in the world, with $85 billion in 2020 gross merchandise volume, or GMV, rendering it the fifth-largest global e-commerce company. EBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers and managed payments. Its platform connects more than 159 million buyers and 19 million sellers across almost 190 global markets. The company generates roughly 55% of its GMV in international markets (versus 45% in the U.S.), with a large presence in the U.K., Germany and Australia.
On Sept. 16, the stock was trading at $74.01 per share with a market cap of $48.14 billion. According to the GF Value Line, the stock is trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 4 out of 10. There are currently two severe warning signs issued for a Beneish M-Score that indicates the company may manipulate its financials and a declining operating margin. Despite the warning sign, the company’s operating margin beats 96.22% of competitors and its net margin fares even better.
Klarman is the top guru shareholder with 2.19% of shares outstanding. Other top guru shareholders in eBay (EBAY, Financial) include Bill Nygren (Trades, Portfolio), Pioneer Investments, Primecap Management, the Smead Value Fund (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies.
Micron
Klarman first established his Micron (MU, Financial) position in the second quarter of 2013 with the purchase of 41.5 million shares. After a 54.22% addition in the third quarter of 2013, the guru took several large chunks out of the position until it was sold out entirely at the beginning of 2016. Klarman bought back into Micron in the third quarter of 2020, with shares trading at an average price of $48.39. Overall, the guru has paid $16.89 per share on average, well below current share prices, landing him at a total estimated gain of 80.03% on the position.
Micron historically focused on designing and manufacturing DRAM for PCs and servers. The company then expanded into the NAND flash memory market. It increased its DRAM scale with the purchase of Elpida (completed in mid-2013) and Inotera (completed in December 2016). The company's DRAM and NAND products are tailored to PCs, data centers, smartphones, game consoles, automotives and other computing devices.
As of Sept. 16, the stock was trading at $74.66 per share with a market cap of $84.05 billion. The GF Value Line shows the stock trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 4 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company’s cash-to-debt ratio of 1.16 ranks the company lower than 59.42% of the semiconductor industry.
Klarman is joined by Primecap Management, Li Lu (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Pioneer Investments and David Tepper (Trades, Portfolio) as top guru shareholders in Micron (MU, Financial).
Veritiv
A position in Veritiv Corp. (VRTV, Financial) has also performed exceptionally well in Klarman’s portfolio. The position was first established in the third quarter of 2014 and has grown by approximately 1.6 million shares up to present day. Since it was established, Klarman has only made three reductions in the holding and has regularly made additions as share prices fluctuate. His average purchase price sits at $38.82 per share and the holding sits at a total estimated gain of 114.69%.
Veritiv provides printing, publishing, packaging and facility solutions. The company also provides logistics and supply chain management services. It operates in four primary segments based on the product type. The print segment, which generates the majority of the revenue, distributes commercial printing and specialty paper products. The publishing segment sells coated and uncoated commercial printing papers to publishers and retailers for use in magazines, books and direct mail. The packaging segment sells a variety of paper-based packaging products within the fiber-based, flexible and rigid categories. The facility solutions segment sells cleaning, breakroom, bathroom, safety, and hazard supplies. The majority of revenue comes from the United States.
The stock was trading at $86.85 per share with a market cap of $1.30 billion on Sept. 16. The stock is significantly overvalued as seen on the GF Value Line.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rank of 5 out of 10. There are currently two severe warning signs issued for declining revenue per share and a declining operating margin. In line with the warning sign, the company’s revenue has fallen off each year since 2018 and net income returned to the green in 2020 for the first time since 2016.
Klarman is by far the largest guru shareholder with 23.89% of shares outstanding. Other guru shareholders in Veritiv (VRTV, Financial) include Simons' firm, Jeremy Grantham (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Trilogy Metals
Klarman’s second-most profitable holding is Trilogy Metals Inc. (TMQ, Financial). The holding was established in the third quarter of 2016 with the purchase of 10.60 million shares. The holding has seen several additions as share prices have risen above $2. Klarman has purchased shares at an average price of 81 cents and sold shares at an average price of $2.03. Overall, he has gained an estimated total of 140.69% on the holding.
Trilogy Metals is an exploration stage company engaged in mineral exploration. The company focuses on exploring and developing its mineral resource properties, which include the Upper Kobuk Mineral Projects (UKMP or UKMP Projects) in the Ambler mining district located in Alaska.
On Sept. 16, the stock was trading at $1.95 per share with a market cap of $279.20 million. According to the Peter Lynch chart, the stock was trading below its intrinsic value at the end of 2020.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rank of 2 out of 10. There is a severe warning sign issued for a low Piotroski F-Score, which implies poor business operations. The company’s cash flows have been negative throughout the last decade.
Alongside Klarman, John Paulson (Trades, Portfolio) and Simons' firm also maintain positions in Trilogy Metals (TMQ, Financial).
Translate Bio
Klarman’s Translate Bio Inc. (TBIO, Financial) position landed itself firmly at the top of his most profitable holdings prior to its acquisition by Sanofi SA (SNY, Financial). The holding was first established in the second quarter of 2018 with the purchase of 1.92 million shares. Klarman made several large additions to the holding over the last few years to grow it to a total of 18.04 million shares. At an average purchase price of $10.59 per share, the holding quickly rose to a staggering total estimated gain of 252.78%.
Translate Bio is a clinical-stage mRNA therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction. The company is developing MRT5005 for the treatment of cystic fibrosis (CF) and MRT5201 for the treatment of ornithine transcarbamylase (OTC) deficiency.
On Sept. 14, the guru’s position in Translate Bio was dissolved with the finalization of its acquisition by Sanofi. Under the terms of the deal, Sanofi paid $38 per share of Translate Bio in cash for a total estimated value of $3.2 billion.
“Sanofi and Translate Bio have a shared commitment to innovation in the mRNA space. With Sanofi’s long-standing expertise in developing and commercializing vaccines and other innovative medicines on a global scale, Translate Bio’s mRNA technology is now even better positioned to reach more people, faster,” Translate Bio CEO Ronald Renaud said. “The talented and dedicated Translate Bio team has built the foundation of a strong mRNA platform. Our expertise coupled with that of Sanofi has driven significant progress under the collaboration thus far, and we believe that this acquisition will strengthen the team’s ability to achieve the full potential of the mRNA technology.”
