Baupost Group manager Seth Klarman (Trades, Portfolio)’s top five holdings as of the third quarter are Twenty-First Century Fox Inc. (FOXA, Financial)(FOX, Financial), Cheniere Energy Inc. (LNG, Financial), Allergan PLC (AGN, Financial), Viasat Inc. (VSAT, Financial) and PG&E Corp. (PCG, Financial), according to GuruFocus current portfolio data.
Managing approximately $31 billion in total assets, Klarman invests in a wide array of securities, ranging from the fairly traditional value stocks to more esoteric investments like distressed debt, liquidations, foreign investments and bonds. Despite this, the author of “Margin of Safety” occasionally sits on the sidelines and holds cash when investment opportunities are scarce. A CNBC article from Aug. 27, 2017 listed Klarman’s three key pillars of investing: analyze the potential for loss before gain, distinguish between absolute return and relative return and focus on individual investment ideas.
Baupost’s equity portfolio has increased in value since 2009: as of the third quarter, the equity portfolio is worth $13.01 billion. The portfolio’s top four sectors in terms of portfolio weight are consumer cyclical, health care, energy and technology.
Top holding: Fox
Klarman’s high-conviction trades include Fox’s Class A shares and Class B shares: as of quarter-end, Class A shares represent 18.95% of the equity portfolio, the largest holding in terms of portfolio weight. Class B shares represent a further 6.24%.
The New York-based entertainment company is bound to a merger agreement with Walt Disney Co. (DIS, Financial), in which Fox will sell its cable, international and entertainment businesses to Disney for $72 billion, or approximately $38 per share. GAMCO Investors Inc. (GBL, Financial) CEO Mario Gabelli (Trades, Portfolio) said in his Asset Fund shareholder letter that the new Fox, which consists of the company’s news, sports and broadcasting businesses, expects to offer a “significant advantage” as the company “negotiates with both traditional and entrant distributors."
GuruFocus ranks Fox’s profitability 7 out of 10 on several positive indicators, which include expanding profit margins, a return on equity that outperforms 88% of global competitors and a Joel Greenblatt (Trades, Portfolio) return on capital that ranks higher than 85% of global diversified media companies. Such characteristics suggest a solidly-performing target, a major criterion of John Paulson (Trades, Portfolio)’s merger arbitrage checklist.
Other gurus with large holdings in Fox include Dodge & Cox, Yacktman Asset Management (Trades, Portfolio) and the Yacktman Fund (Trades, Portfolio).
Cheniere Energy
Cheniere Energy, a Houston-based oil and gas company, represents 7.76% of the equity portfolio.
Cheniere Energy operates two business segments that primarily engage in liquefied natural gas-related businesses: LNG Terminal and LNG and Natural Gas Marketing. The company owns and operates several facilities, including the Sabine Pass LNG terminal in Louisiana, the under-development Corpus Christi LNG terminal and Cheniere Marketing.
GuruFocus ranks the company’s profitability 6 out of 10: even though net margin and return on assets are underperforming over 87% of global competitors, Cheniere Energy’s three-year revenue growth rate of 172% ranks higher than 98% of global midstream energy companies.
Other gurus with large holdings in Cheniere Energy include Carl Icahn (Trades, Portfolio) and David Tepper (Trades, Portfolio).
Allergan
Allergan, an Irish drug manufacturer, represents 7.42% of the equity portfolio.
Allergan manufactures and distributes brand-name pharmaceutical products, medical aesthetics, biosimilar and over-the-counter pharmaceutical products. GuruFocus ranks the company’s profitability 7 out of 10 primarily due to a solid Piotroski F-score of 6 and a three-year revenue growth rate of 30.90%, a rate that outperforms 91% of global competitors.
Viasat
Viasat, a Carlsbad, California-based communication equipment company, represents 6.91% of the equity portfolio.
Viasat provides bandwidth technologies and services in three segments: satellite services, commercial networks and government systems. GuruFocus ranks the company’s profitability a modest 5 out of 10 on several warning signs, which include a weak Piotroski F-score of 3 and a three-year revenue decline rate of 1.60%, a rate that underperforms 56% of global competitors.
PG&E
PG&E, a San Francisco-based electric utility company, represents 6.87% of the equity portfolio.
GuruFocus ranks the company’s profitability 5 out of 10: although it has expanding operating margins, the margins and returns are underperforming over 87% of global competitors. Additionally, PG&E has a weak Piotroski F-score of 3.
Disclosure: No positions.
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