As expected, the weekend produced a flurry of 13HF filings and the stack piled up rather quickly. Some I set aside to come back to later in the week, but the investors who have been in the business a long time -- and have experienced an enormous amount of success along the way -- go the head of the line. I want to see what these super investors are doing and begin the process of researching their latest buy and sell candidates. Two of the latest filings made it right to the top, so I begin sifting through their activity and starting the follow-up research.
The first of these is Seth Klarman of Baupost Fund. Klarman has exceeded as a value investor for more than two decades now and his funds returns are among the best over that time frame. He has continued to add to this fund's positions in drug and medical companies. Not only did he purchase more of PDL BioPharma (PDLI) in the quarter, he has increased his position by a sizable amount since the quarter ended. This company has a stream of royalties from its portfolio of patented human antibodies and yields more than 10% at the current price. The fund also better than doubled its stake in Syneron Medical (ELOS). Despite strong revenue gains in the second quarter, the maker of aesthetic medical devices has seen its stock price fall sharply in recent weeks. Cash and investments on hand at the company are $212 million vs. a market capitalization of just $337 million.
Klarman also made an unusual move for his funds buying large stakes in two of the world's largest companies. They took advantage of weak energy prices to buy more than 5 million shares of BP (BP). With the scandal of the Gulf oil spill in the company's rearview mirror, the stock is pretty cheap at 6x earnings. Klarman also bought 12 million shares or so of Microsoft (MSFT) during the second quarter. This one surprises me a little as I really think the company needs a dramatic change in its dividend policy and business approach before the stock can move meaningfully higher. Having said that, Klarman is far smarter and more successful than I; therefore, I plan to spend some of this rainy day reading the latest reports from the company.
From my point of view, the most interesting purchase by Baupost in the quarter was Central Pacific Financial . The fund bought 1.8 million shares of the Hawaii-based bank. The bank has 37 branches in the island state and has been in business there since 1954. The bank has reversed the losses from the credit crisis and has shown a profit two quarters in a row. Non-performing assets are declining rapidly as well, falling from more than 7% of assets to 6%, year over year. The tangible equity-to-asset ratio is almost 10, so the bank has plenty of capital. At trading at just a bit above tangible book value, the stock price is becoming attractive. Apparently, insiders think so as they have been purchasing the shares recently.
One of the other investors that I always rush to read is legendary value investor Michael Price. The notable thing about his activities in the second quarter is that he is backing up his recent bullish comments by buying bank stocks. I was pleased to see that he opened a position in one of my favorites, Hudson City Bancorp (HCBK). Price bought 500,000 shares of the bank in the quarter. He also purchased shares of Wilshire Bancorp (WIBC), Franklin Financial (FRNK), The Bancorp (TBBK) and KeyCorp. (KEY). In the larger financial names, Price was buying Goldman Sachs (GS), Citigroup (C) and CIT Group (CIT).
It is often said that they do not ring a bell at market tops and bottoms. However, seeing the amount of bank stock purchases, especially among the smaller regional and community banks, sounds a lot like ringing to my ears. The trade of the decade is taking shape: It is time to start building a portfolio of smaller banks. Stealing from one of the best investors of the last several decades is a good place to start.