I don't know about you, but in the first two weeks of February there is always this nagging feeling in my head that I am forgetting something. Do you get that? Then, inevitably, my wife will hand me a red envelope and it will dawn on me that once again, I have totally forgotten Valentine's Day.
On Wall Street , anyone worth listening to has a secretary to take care of the spouse on Valentine's Day. What they are worried about is getting their SEC filings completed. Certain big holders of stocks -- Warren Buffett, T Boone Pickens, Carl Icahn, Wilbur Ross -- have to let the feds know what they're sitting on. It can be a gold mine of information, a free tip sheet available to anyone willing to read through a few pages of 12-point Courier legalese.
I like to keep an eye on Seth Klarman. He's known as a value investor, which some see as a long way from the aggressive growth that my Game-Changing Stocks newsletter seeks. But that's not the whole story. He's not just looking for companies that the market is undervaluing... he's looking for companies that the Street hasn't fully valued yet.
There is a difference. It's one thing to buy a company that has seen its shares beaten down. It's another thing entirely to buy a company that investors haven't discovered yet. That type of value investing is exactly what I try to do with Game-Changing Stocks .
If you want to get a sense of Klarman, check out his cult classic book, Margin of Safety . It's one of the most "insider" books out there. Be warned, though. It's pricey. The cheapest copy I found on bookfinder.com was $779 -- this for a book that sold for $20 when it first came out. (I confess I went to the Johnny Faulk Public Library in Austin for this one. They made me leave my wallet at the reference desk as collateral .)
Klarman now runs a hedge fund called Baupost Group. Here are its holdings as of Dec. 31, 2011 (the largest ones are in bold):
As I have often said before, no number on Wall Street makes any sense in and of itself -- you always need another number for context. For devotees of a certain stock-picker, the best thing to do is to look at the previous filing from 90 days earlier.
Ten positions are unchanged from the 3Q 2011 filing: Alliance, Central Pacific Financial, Genworth, Ituran, Microsoft Multimedia Games, Sycamore Networks, Syngeron Medical, Theravance and Viasat. I grouped the two News Corp. positions together and count them as unchanged.
One position, a 2.6 million-share block of Breitburn Energy Partners (Nasdaq: BBEP ) , was completely cut from the portfolio. Four other positions were reduced: Alere (NYSE: ALR ) , by 35.5%, from 3.1 million shares to 2 million; BP (NYSE: BP ) , by 12.4%, from 13.7 million to 12 million; Hewlett Packard (NYSE: HP ) , by 9.6%, from 20.8 million to 18.8 million; and PDL Biopharma (Nasdaq: PDLI ) , by 45.2%, from 14.6 million to 8 million shares.
No entirely new stocks were added to the portfolio in the fourth quarter of 2011. Klarman did add to three positions, however, and in some cases quite significantly. His stake in Allied Nevada Gold (NYSE: ANV ) was increased 14.3%, from 3.5 million shares to 4.0 million; Aveo Pharmaceuticals (NYSE: AVEO ) marginally, from 5 million shares to nearly 5.1 million; and Novagold Resources (NYSE: NG ) , which had a dramatic increase of 50%, from 5 million to 7.5 million shares.
After examining the portfolio in the micro for the changes, the next thing to do is to take a look from 35,000 feet at the macro-view. What is Klarman really betting on with this portfolio? Clearly the answer there is deep value: He thinks News Corp., Microsoft and Hewlett-Packard are undervalued, and he's likely waiting for the companies to post some improved results so that Wall Street will return them to their more typical (richer) valuations.
But there's another holding in the "Large" positions I highlighted in the chart above -- ViaSat (Nasdaq: VSAT ) , a largely anonymous $2 billion maker of satellite and networking systems. When a guy like Klarman places a nearly $500 million bet on a company that most have never even heard of, it's time to take a closer look.
Risks to Consider: It's worthwhile to follow the moves of the big money managers, but keep in mind you're not always going to read the tea leaves correctly -- nor is the money manager . That said, following the moves of a guy like Klarman is likely to pan out more times than not.
Action to Take --> A look at this portfolio and the moves Klarman made should be a valuable starting-off point for further research. As for myself, I intend to look into ViaSat a little further. In the meantime, if you're looking for strong candidates for your general growth portfolio -- the 80%, as opposed to the 20% reserved for aggressive Game-Changing Stocks plays, then I think Hewlett-Packard and Microsoft are both worthwhile.
Andy Obermueller does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of MSFT in one or more if its "real money" portfolios.
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