Value investing is returning to the spotlight as investors prepare for a higher and longer interest rate environment. Legendary value investor Seth Klarman had stated in his 2000 investor letter that while value investing may underperform the broader market amid changing investment sentiment, value investing Value as a basic investment principle and strategy would never go out of style.
“We do not seek to track any particular market index or benchmark. Rather, we attempt to achieve good risk-adjusted investment results over time through the successful implementation of our investment philosophy. We continue to strongly believe in a value-driven approach to investing. , which attempt to purchase assets or businesses at a significantly discounted price to the underlying value. Bargains exist because financial markets are inefficient, but many investors lack the patience and discipline to profit from them. “
Seth Klarman invests in AI and growth stocks in 2024
A quick look at Seth Klarman’s portfolio for Q1 2024 shows that the value investor is no longer limited to defensive stocks with attractive valuation metrics. It also invests in high-growth, loss-making companies that are expected to grow in the future. Klarman has repeatedly said that value investing does not mean adhering to a set model without any flexibility.
What makes a stock undervalued according to Klarman?
In his 2000 letter, he said he would consider a stock undervalued if its undervaluation is “substantial” and there are enough catalysts to help it reach its true value in the future. Klarman also said the underlying business of the company it wants to invest in should “grow, not erode.”
Seth Klarman wrote “Safety margin” in 1991. The book, much like Klarman’s investments, has aged well and after years without attracting the attention of Wall Street, has become a bible of value investing and a cult classic in the investment landscape. investment Speaking about his book and investing philosophy on Capital Allocators with Ted Seides last year, Klarman said any financial writing or advice should stand the test of time. He gave the example of. . Security analysis written by Benjamin Graham And David Dodd, saying that the companies and case studies mentioned in the book no longer exist, but the principles and strategies remain relevant. Klarman believes that even if humans are replaced by computers, these timeless investment principles will remain valid.
Klarman also said that the chances of making money by investing in “widely followed” stocks are not that high.
“Watching what everyone is watching probably isn’t very interesting. If you look at what everyone is watching, watch it in a very differentiated way. But you’re not going to make money by outwitting the people on many subjects. followed actions with an undifferentiated opinion.
The Baupost group returns
The media-shy billionaire, worth about $1.3 billion, founded the Baupost Group in 1982. Although the fund does not publicly share its returns, a Wall Street Journal report last year revealed that Baupost had returned on average about 20% per year since its inception.
For this article, we analyzed Klarman’s portfolio as of Q1 2024 and chose three interesting stocks that it acquired new stakes in during the first quarter. Unlike NVIDIA Corp (NASDAQ:NVDA), Amazon.com Inc (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOG), which everyone is buying, you’ll see some new names in the portfolio. To see more new stocks in Klarman’s portfolio, click Top 4 New Stock Picks from Seth Klarman in 2024.
SoundHound AI, Inc. (NASDAQ:SOUN)
Value of Seth Klarman’s stake: $5,554,000
Value investor Seth Klarman investing in a high-growth AI stock that is up over 163% so far this year is news in itself. SoundHound AI, Inc. (NASDAQ: SOUN) is a California-based AI-based speech and voice recognition solutions company that rose to prominence following the AI revolution after the launch of ChatGPT. Seth Klarman’s Baupost reported holding a $5,554,000 stake in SoundHound AI, Inc. (NASDAQ:SOUN) during the first quarter of 2024. Besides NVIDIA Corp (NASDAQ:NVDA), Amazon.com Inc (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG), AI-focused investors are also buying SOUN.
Fortrea Holdings Inc. (NASDAQ:FTRE)
Value of Seth Klarman’s stake: $12,194,000
Healthcare solutions company Fortrea Holdings Inc. (NASDAQ:FTRE) is one of the stocks Seth Klarman is buying in 2024. His hedge fund Baupost opened a $12,194,000 stake in Fortrea Holdings Inc. (NASDAQ:FTRE ) during the March quarter this year.
Of the 933 hedge funds tracked by Insider Monkey as of the end of 2023, 31 hedge funds reported holding stakes in Fortrea Holdings Inc. (NASDAQ: FTRE).
In May, Fortrea Holdings Inc. (NASDAQ: FTRE) reported its first quarter results. Adjusted EPS for the period came in at -$0.04, missing estimates by $0.04. Revenue fell 4.6% year over year to $662.1 million, missing estimates of $92.48 million.
Unlike NVIDIA Corp (NASDAQ:NVDA), Amazon.com Inc (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOG), FTRE is a small company with little trust in hedge funds.
Vltava Fund mentioned Fortrea Holdings Inc. (NASDAQ:FTRE) in its Q4 2023 investor letter. Here’s what the company had to say:
“Value can be created in different ways. Acquisition is a possibility. So-called spin-offs represent another. This involves breaking off part of a business into a separate entity and commercializing it. One such spin-off occurred last summer with LabCorp. She created a smaller part of the company under the name Fortrea Holdings Inc. (NASDAQ:FTRE). For each of their shares, LabCorp shareholders received one share of the new Fortrea. The stock started trading at a pretty attractive price, so we sold it immediately. Given the price we got, we could say that this spin-off brought us some value, but it was only a one-time transaction and not very significant.
GDS Holdings Limited (NASDAQ:GDS)
Value of Seth Klarman’s stake: $17,290,000
China-based data center company GDS Holdings Limited (NASDAQ:GDS) is another growth stock purchased by Seth Klarman in the first three months of 2024. So far this year, shares of GDS Holdings Limited ( NASDAQ:GDS) gained approximately 8% in value.
These were just three new stock picks from Seth Klarman. But he’s buying a lot of stocks this year. Click to see 4 more of Seth Klarman’s best new stock picks in 2024.
If you’re looking for an AI stock that’s as promising as Microsoft but trades at less than 5x earnings, check out our report on cheapest AI stock.
READ NEXT: Michael Burry Sells These Stocks and a New Dawn Comes for US Stocks.
Disclosure: None. Seth Klarman 2024 Portfolio: Top New Stock Picks was originally published on Insidermonkey.com
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