Seth Klarman (Trades, Portfolio) is arguably one of the greatest value investors in history. For decades, hes compounded investor capital at roughly 20% per year. Only the likes of Warren Buffett (Trades, Portfolio) and Prem Watsa (Trades, Portfolio) can match that track record.
While Klarman is known for his risk-minded approachhe literally wrote a book on margin of safetysmall-cap stocks frequently make their way into his portfolio. Thats notable considering he manages billions of dollars. If hes willing to deal with the liquidity and disclosure hurdles of these tiny stocks, they likely represent high-conviction bets.
Here are three small-cap picks from Klarmans portfolio. He recently added to his holdings of every stock on this list.
Atara is an $800 million biotech company focused on developing T-cell immunotherapies for patients with cancer, autoimmune and viral diseases. In late May, it appointed Pascal Touchon, previously the global head of cell and gene therapies at Novartis (NVS) Oncology, as CEO.
Klarman originally purchased shares in 2014 and has slowly added to his bet over the years, at both historical low and high prices. His average purchase price is around $29 per share, nearly double the current trading range.
The company is well capitalized following a $150 million raise in July. Today, the stock is simply a bet on the regulatory approval and commercial success of its late-stage pipeline. Last quarter, Klarman increased his position by nearly 10%, likely signaling confidence in the upcoming results. This looks like a great way to bet alongside Klarman at a bargain price.
Trilogy is a $200 million mining company. Its fully-owned high-grade copper project in Alaska has industry-leading economics, with projected all-in costs of $1.26 per pound. Multiple resource analyses have confirmed the size and economic viability of the proposed mine. Copper should face secular demand growth for the next decade and beyond due to the rise of renewable energy.
Klarman originally acquired shares in 2016, but has since grown his position 30% across several purchases. His average purchase price is just 81 cents per share, meaning hes already booked a 100% gain. Last quarter, however, he purchase shares at $2.65 per share. The current price is 40% lower, so theres still time to follow Klarmans bet.
Its critical to know it will be years before Trilogy hits first production at its mine. The required roadways through the Alaskan wilderness arent even built yet. Klarman seems to be taking the long view on this holding. Note that guru John Paulson (Trades, Portfolio) also owns roughly 10% of the outstanding shares.
Translate is another biotech pick with a market cap of roughly $500 million. Klarman owns nearly 25% of the outstanding shares, likely representing a very high-conviction bet. The position accounts for 1% of his entire portfolio. Thats a huge bet considering its one of the smallest companies he owns.
Translate develops messenger RNA therapeutics to treat diseases caused by protein or gene dysfunctions. Klarman has been invested since the companys initial public offering in 2018, but has dramatically increased his position in recent quarters. In late August, he increased his bet by 40% at $9.08 per share. His average purchase price is $10.78thats above the current trading price following a deep pullback this summer.
If you want to bet with Klarman, this looks like your most attractive opportunity.
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