Seth Klarman’s Top 9 Value Stocks To Buy Now

John Smith

Boston-based hedge fund Baupost Group, led by legendary value investor Seth Klarman, has significantly boosted its stakes in several undervalued stocks heading into 2024.

With economic headwinds persisting and a possible recession on the horizon, Klarman seems to be focused on snatching up shares of solid companies trading at attractive valuations.

Here is a look at Baupost Group’s top 9 value stock picks based on its latest 13F filings:

1. Fidelity National Information Services (FIS)

  • Sector: Information Technology Financial Services
  • Baupost Investment: $384 million
  • Forward P/E Ratio: 11.16

Fidelity National Information Services (NYSE: FIS) provides technology solutions for merchants, banks, and capital markets firms globally. The financial services technology company has beaten earnings estimates in each of its past four quarters. With analysts forecasting over 15% EPS growth next year, FIS trades at just 11x forward earnings.

Baupost more than doubled its FIS position in Q3 2023. The value-focused hedge fund now owns 14.5 million shares worth $384 million, making it the largest public shareholder.

2. Liberty SiriusXM Group (LSXMA)

  • Sector: Communication Services
  • Baupost Investment: $378 million
  • Forward P/E Ratio: 8.82

The Liberty SiriusXM Group (NASDAQ: LSXMA) operates satellite radio provider SiriusXM along with interests in live sports and music events. Despite missing earnings estimates in two of the past four quarters, analysts rate LSXMA stock as a Strong Buy with significant upside to the average price target.

Baupost initiated a massive new position in LSXMA during the third quarter, scooping up 12.7 million shares. The influential hedge fund now owns a $378 million stake in Liberty SiriusXM.

3. Willis Towers Watson (WTW)

  • Sector: Financials
  • Baupost Investment: $325 million
  • Forward P/E Ratio: 14.99

Willis Towers Watson (NASDAQ: WTW) is a leading global advisory and insurance brokerage firm founded in 1828. WTW shares popped 10% in November after a major stake increase from value-focused asset manager Brandes Investment Partners.

Baupost has also been building a sizable position in Willis Towers Watson. Seth Klarman’s firm owns 4.3 million shares worth over $325 million heading into 2024.

4. CRH plc (CRH)

  • Sector: Materials
  • Baupost Investment: $183 million
  • Forward P/E Ratio: 12.12

Ireland’s CRH plc (NYSE: CRH) is a leading building materials supplier operating cement, aggregates, and other construction businesses across Europe and North America. CRH shares trade at 12x forward earnings despite analysts forecasting over 11% EPS growth next year and setting an average price target implying 12% upside.

Baupost initiated a new $183 million position in CRH stock during the third quarter of 2023, making it one of Seth Klarman’s top new buys. The value hedge fund owns 4.8 million shares.

5. Clarivate Plc (CLVT)

  • Sector: Technology
  • Baupost Investment: $150 million
  • Forward P/E Ratio: 7.5

UK-based Clarivate Plc (NYSE: CLVT) provides critical data, analytics, and insights to customers across the academic, scientific, and intellectual property markets. Despite a challenging macro spending environment, Clarivate has delivered steady results this year. Meanwhile, the stock trades at just 7.5x forward earnings.

Baupost holds 27 million Clarivate shares worth over $150 million. The value-focused hedge fund has been building its position over the past year during Clarivate’s more than 60% share price plunge.

Undervalued Commercial Real Estate Stocks Offer Recession Resilience

With growing recession fears in 2023, Baupost has also taken significant stakes in several commercial real estate firms trading at bargain valuations. Commercial real estate generally holds up better during economic slowdowns as long-term leases provide stable cash flow even if occupancy dips slightly.

Here are two discounted REITs that Seth Klarman is betting on:

6. Paramount Group (PGRE)

  • Sector: Real Estate
  • Baupost Investment: $75 million
  • Dividend Yield: 7.7%

Paramount Group (NYSE: PGRE) owns Class A office properties concentrated in New York City along with Washington D.C. and San Francisco. Despite concerns about the future of office space, Paramount enjoys strong occupancy rates near 90% with minimal near-term lease expirations. However, PGRE trades at just 6x FFO, a whopping 60% discount to sector peers.

Baupost initiated a new position in Paramount Group during Q3 2023. Seth Klarman’s firm now owns 14.5 million shares worth over $75 million. The big value hedge fund is likely attracted to PGRE’s 7.7% dividend yield at current prices.

7. CBL & Associates (CBL)

  • Sector: Real Estate
  • Baupost Investment: $42 million
  • Dividend Yield: 22%

CBL & Associates (NYSE: CBL) owns regional shopping malls predominantly located in the southeastern and midwestern United States. The REIT has struggled with tenant bankruptcies and falling occupancy rates in recent years. However, CBL has addressed near-term debt maturities while occupancy now appears to be bottoming around 80%.

Still, CBL trades at just 2x FFO, a massive discount to peers. The company also pays an eye-popping 22% dividend yield at current prices.

Baupost initiated a sizable $42 million position in CBL stock during the third quarter. Seth Klarman likely spies significant upside in the left-for-dead mall REIT.

Value Stocks with Conservative Balance Sheets

With the threat of recession looming, Seth Klarman has focused Baupost’s buying on value stocks boasting fortress-like balance sheets. Companies with low debt levels and strong free cash flow can generally weather any economic storms.

Here are two such recession-resistant value picks from Baupost Group’s latest 13F filings:

8. News Corp (NWSA)

  • Sector: Communication Services
  • Baupost Investment: $64 million
  • Forward P/E Ratio: 16.7

News Corp (NASDAQ: NWSA) publishes news and information globally under brands including The Wall Street Journal, New York Post, Dow Jones, and HarperCollins.

Despite inflationary pressures on costs this year, News Corp generates plenty of free cash flow while carrying minimal debt. Management expects positive subscription growth for its key digital real estate and Dow Jones Professional segments in 2023.

Baupost initiated a new position in News Corp stock during Q3 2023. Seth Klarman’s value hedge fund now owns 9 million shares worth $64 million. NWSA trades at just 16.7x forward earnings with a free cash flow yield approaching 9%.

9. LivaNova PLC (LIVN)

  • Sector: Healthcare
  • Baupost Investment: $64 million
  • Forward P/E Ratio: 14.8

UK-based LivaNova PLC (NASDAQ: LIVN) develops medical devices and implants to treat cardiovascular and neurological disorders. Despite cutting its full-year earnings guidance due to FX headwinds, LivaNova still expects to deliver double-digit EPS growth this year. The company has also achieved margin expansion and sports a pristine balance sheet.

Baupost initiated a $64 million position in LivaNova stock during Q3 2023. Seth Klarman’s value hedge fund now owns 1.5 million shares of this overlooked medical device maker trading at less than 15x forward earnings.

Key Takeaways on Seth Klarman’s Latest Value Stock Buys

Legendary value investor Seth Klarman spent over $1.5 billion last quarter building new positions and adding to existing stakes in discounted stocks. Baupost Group’s newest value stock buys feature low multiples, high margins, and balance sheet strength. These types of recession-tolerant picks could significantly outperform as headwinds persist in 2023.

Some clear investment themes emerge from studying the stocks Klarman is buying:

  1. Undervalued technology stocks with steady cash flow generation
  2. Media and communications firms with strong digital positioning
  3. Discounted commercial real estate plays offering high dividend yields
  4. Healthcare companies benefitting from higher R&D spending trends
  5. Various financial services firms trading substantially below historical valuations

With a potential U.S. recession on the horizon next year, inflation still uncomfortably high, and the Fed likely to keep interest rates elevated for some time, the broader equity markets face ongoing volatility and uncertainty in 2024.

By concentrating his buying in shares of quality companies trading at bargain prices, Seth Klarman is positioning his portfolio to weather any storms ahead while capitalizing on the bargains from market distress. Income investors should also take note of Klarman’s big bets on high-yielding REITs and specialty finance stocks.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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