Seth Klarman (Trades, Portfolio) recently released the 13F portfolio update for The Baupost Group’s fourth quarter of 2022, which ended on Dec. 31.
The Baupost Group is a hedge fund company founded by Harvard Professor William Poorvu in 1982. Based in Boston, Massachusetts, the long-only fund invests in a wide range of securities, from common stock to liquidations and distressed debt. Klarman is the portfolio manager and believes 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.
The firm’s top buys of the quarter were the voting shares of Alphabet (GOOG, Financial) and Meta Platforms Inc. (META, Financial). Meanwhile, it sold out of its investment in Dropbox Inc. (DBX, Financial) and slashed Fiserv Inc. (FISV, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Alphabet
The Baupost Group upped its stake in the Class A voting shares of Alphabet (GOOG, Financial) by 190.22% for a total of 3,994,280 shares. The trade added 3.80% to the equity portfolio. During the quarter, shares traded for an average price of $95.44.
Based in Mountain View, California, Alphabet is a multinational conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.
Alphabet’s Google is the world’s leading search engine by a long shot, and its Maps application and YouTube are widely utilized, all of which bring in hefty advertising revenues. Amid declines in advertising spending as the economy slows down, the company is aiming to hold onto its search engine dominance and diversify its revenue with artificial intelligence.
Based on its GF Value chart, Alphabet is significantly undervalued, despite its 10-year revenue and earnings per share growth rates of 20% and continued upwards growth trajectory.
Meta Platforms Inc.
The firm also upped its Meta Platforms Inc. (META, Financial) investment by 150.83% for a total of 1,727,851 shares, adding 2.04% to the equity portfolio at the quarter’s average share price of $117.43.
Meta Platforms is the parent company of several social media juggernauts, including Facebook, Instagram and WhatsApp. It rebranded to its current name in late 2021 to represent that it is pinning its hopes for future growth on the Metaverse, a 3D interactive version of the internet.
The company still gets the vast majority of its revenue from its family of apps, with the Metaverse segment, Reality Labs, contributing only a small sliver to the top line and being a money sinkhole at the moment. The fact that Meta is relying on Reality Labs for its long-term growth means the story for investors has fundamentally changed, requiring careful re-assessment.
Dropbox Inc.
Klarman’s firm sold out of its 7,819,924-share holding in Dropbox Inc. (DBX, Financial), which previously had a weight of 2.80% in the equity portfolio. Shares averaged $22 apiece during the quarter.
Dropbox is a widely used file-hosting service founded in 2007. It is known for facilitating the world’s first “smart workspace,” which includes cloud storage, file synchronization, personal cloud and client software. It is headquartered in San Francisco, California.
While Dropbox is still profitable and widely utilized, its earnings have pretty much flatlined in recent years alongside its share price. Competitors such as Microsoft’s (MSFT) OneDrive and Alphabet’s (GOOG, Financial)(GOOGL) have been gaining momentum as they offer more free storage space, although Dropbox’s paid version still has certain areas where it excels.
Fiserv Inc.
The firm slashed its investment in Fiserv Inc. (FISV, Financial) by 43.31%, leaving a remaining stake of 2,002,391 shares. The sale trimmed 2.47% off the equity portfolio. Shares traded for an average price of $99.59 apiece during the quarter.
Based in Brookfield, Wisconsin, Fiserv is a multinational provider of financial services technology to corporate clients in the financial world, including banks, credit unions, thrifts, leasing and finance companies, insurance companies and securities processing organizations.
Given that Klarman has been commenting for the past couple of years that easy money policies following the financial crisis and the Covid-19 recession have contained “the seeds of its own destruction,” perhaps it’s not a surprise Klarman would be reducing exposure to this fintech major. Fiserv has also become a value-destroying stock again with the return on invested capital (ROIC) consistently below the weighted average cost of capital (WACC) in recent years.
See also
Other notable Baupost trades for the quarter included the sale of its Encompass Health Corp. (EHC, Financial) holding and an addition to Fidelity National Information Services Inc. (FIS, Financial).
When the quarter ended, Baupost’s 13F equity portfolio consisted of shares in 32 stocks valued at a total of $6.11 billion. The turnover for the quarter was 10%.
The top holdings were Liberty Global PLC (LBTYK, Financial) with 15.10% of the equity portfolio, Liberty SiriusXM Group (LSXMK, Financial) with 8.74% and Qorvo Inc. (QRVO, Financial) with 8.50%.
By portfolio weight, the firm was most invested in communication services and technology stocks.
