Follow the Smart Money Into Veritiv

 | Aug 19, 2014 | 1:00 PM EDT
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Stock market investing is a unique field. One can actually do very little work and still generate returns that can beat many of the hard-working investment pros. The secret is easy: Follow the smart money and copycat the best investors.

As long as an investor manages over $100 million, that investor has to disclose his or her investment positions every quarter in a 13F filing. The second quarter 13F filings came out last week and there were plenty of quality investors with new ideas to chew one.

One investor good enough that could almost be followed blindly is Seth Klarman of Baupost Group. Baupost's 13F didn't show anything new during the second quarter, but it recently disclosed a stake in Veritiv Corp. (VRTV), a newly formed $734 million company that is a business-to-businesses distributor.

Veritiv was created by the merger of International Paper's (IP) xpedx division and Unisource Worldwide. It began trading on the NYSE in June, and it provides businesses with mundane yet essential services such as printing, packaging and logistics solutions. On an annualized basis, the company generates $10 billion a year in revenue. During the second quarter of 2014, sales were $2.3 billion, its net loss was $3.3 million and adjusted earnings before taxes, depreciation and amortization was $38 million.

The shares currently trade for $46, down from $53 and up from a low of $32. Baupost owns 14% of the company. For the full year, Veritiv management expects adjusted EBITDA in the range of $135 million to $145 million, which looks very attractive for a company with a $734 million market capitalization.

What intrigues me about this business is that I believe its creation is not yet fully understood in the market, and that uncertainty can often create a mis-valuation. Baupost is a very shrewd investment firm and I believe it is capitalizing on this fact, along with the cash flow potential of the company.

Baupost has been very selective with its equity picks so any time one comes up, it's worth moving to the top of the idea list. With the type of revenue and EBITDA numbers being generated, Veritiv could easily be a $2 billion business in a very short time.

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