Baupost Group’s Portfolio & 10 Largest Public Equity Investments
Baupost’s public-equity portfolio is not heavily diversified. Instead, its holdings are concentrated, featuring high-conviction ideas. The portfolio numbers only 28 equities, the 10 most significant of which account for 73.8% of its total composition. The fund’s largest holding is Veritiv Corporation (VRTV), occupying around 12.1% of the total portfolio.
Source: 13F filing, Author
Veritiv Corporation (VRTV)
Veritiv Corporation functions as a B2B provider of value-added packaging products and services, as well as facility solutions, print, and publishing products and services internationally.
Note that while Veritiv’s shares have performed well over the past few years, the company’s business model suffers from extremely low margins. Net income margins over the past four quarters amount to just 4.8%. Hence the company’s ultra-low valuation multiple of 0.4X from a price/sales perspective.
The company is Baupost’s largest holding, and the position was held stable during the quarter. Baupost holds around 22.1% of the company’s total shares, meaning it has an active influence on the company. The fund has been accumulating shares since Q3-2014.
Alphabet Inc. (GOOGL) (GOOG)
Shares of Alphabet came under severe pressure last year as the macroeconomic turmoil, including reducing advertising spending and a strong dollar, materially impacted the company’s ability to grow. Additionally, due to accelerated hiring and an overall increase in spending, the company’s profitability had been compressed in recent quarters. However, following increased optimism post the company’s most recent results, the stock has rebounded notably.
The company continues to feature one of the healthiest balance sheets in the market, management returns tons of cash to shareholders through stock buybacks, and its overall performance should rebound once market conditions improve. Alphabet is Baupost’s second-largest holding, with the fund trimming its position by a notable 29% during the quarter.
Viasat, Inc. (VSAT)
Media conglomerate Viasat is Baupost’s third largest holding, accounting for roughly 10.8% of its portfolio. In the current landscape, legacy media conglomerates have been in trouble as content creation is becoming increasingly decentralized.
Companies such as Netflix (NFLX), Amazon (AMZN), and even Apple (AAPL) have started producing their own content, while the news outlets have moved mostly online, generating sales through ads or a subscription fee.
In our view, Baupost holds a stake in Viasat as an activist investor due to the fund holding 21.2% of its total outstanding shares. This indicates the possibility that Baupost wants to have an active influence on how the company is run, with a potential aim towards modernizing.
For retail investors, the position could be a risky long-term bet, though an admittedly attractively priced one.
Fidelity National Information Services, Inc. (FIS)
Fidelity National Information Services, Inc. is a provider of financial technology services for merchants, banks, and capital markets businesses. The company was founded in 1968 and is headquartered in Jacksonville, Florida. FIS offers technology solutions for retail and institutional banking, payments, asset and wealth management, risk and compliance, payment processing, consulting, and outsourcing.
Shares of Fidelity have plummeted lately following the banking crisis that regional banks have been experiencing. Nevertheless, the company should be one of the more resilient players in the space and is expected to remain profitable this year.
Fidelity National Information Services is Baupost’s fourth largest holding. The fund increased its position by 124% during the quarter.
Warner Bros. Discovery, Inc. (WBD)
Warner Bros. Discovery is an international mass media company and one of the largest in the space globally. The stock has now declined to the same levels it was trading 15 years ago, as the combined company has had a hard time integrating its assets and having them produce solid cash flow. On the one hand, Warner Bros. Discover already achieved $750 million in incremental synergies last year, while this year, those synergies are expected to ramp up notably to $2.75 billion and $3.5 billion in 2024+. But such improvements remain uncertain.
The fund trimmed its position on the stock by 18% during the quarter. Warner Bros. Discovery is now Baupost’s fifth largest holding, and the fund owns 1% of the company’s total outstanding shares.
Qorvo, Inc. (QRVO)
Qorvo develops and markets technologies and products for wireless and wired connectivity worldwide. If the forecasts regarding 5G are realized, the semiconductor industry (along with Qorvo) is likely to enjoy massive growth over the next few years.
This growth partially materialized for Qorvo from 2020 through 2022, but growth has slowed since. This illustrates that the company is cyclical in nature.
Baupost trimmed its position by around 43% during the latest quarter. The company is the fund’s sixth-largest holding.
New Oriental Education & Technology Group Inc. (EDU)
New Oriental Education & Technology Group Inc. delivers exclusive educational services in the People’s Republic of China, operating under the renowned New Oriental brand.
Following the Chinese government’s crackdown on private education, the company faced significant impacts and challenges. It experienced adverse effects due to the regulatory changes implemented by the government. The company’s operations and business model were directly affected, leading to a period of uncertainty and adjustment, which resulted in its shares plummeting a couple of years ago. Signs of a gradual recovery are lately noticeable nonetheless.
New Oriental Education & Technology is Baupost’s seventh-largest holding, making up around 4.7% of its portfolio. The fund trimmed its position by 23% during the quarter.
SS&C Technologies Holdings, Inc. (SSNC)
Founded in 1986, SS&C has grown over the years through a combination of organic growth and acquisitions. The company has acquired numerous other financial technology and software firms to expand its product offerings and market reach. This strategy has allowed SS&C to become a prominent player in the financial technology sector.
SS&C serves a diverse client base that includes investment managers, asset owners, insurance companies, banks, hedge funds, and other financial institutions. Their software solutions aim to streamline operations, enhance decision-making, improve efficiency, and enable compliance with industry regulations.
Baupost initially invested in SS&C in Q2-2022. It is the fund’s eighth-largest position, making up around 4.5% of its portfolio.
Garrett Motion Inc. (GTX)
Garrett Motion is known for its expertise in turbocharging technology. Turbochargers are devices that compress air entering an engine, allowing for a higher air-to-fuel ratio and increasing engine power. Garrett Motion’s products play a crucial role in enhancing engine power output and fuel efficiency and reducing emissions.
That said, the $2.1 billion company has struggled to grow in recent years while its profitability remains weak.
Baupost owns about 9.2% of Garret Motion’s total shares. It is the fund’s ninth-largest holding.
