Last week marked the start of "13F season," when investment managers report their quarterly portfolio holdings with the Securities and Exchange Commission. It was slim pickings in terms of ideas, however, at least according to the investors I follow.
Seth Klarman, founder of Baupost Group and one of the shrewdest investors out there with a track record to prove it, made a few new bets during the third quarter, including new pharmaceutical plays in Forward Pharma (FWP) and Atara Biotherapeutics (ATRA). Followers of Klarman or Baupost will recognize that for several years now he has been making numerous bets on biopharmaceutical companies. Baupost's portfolio still remains loaded with names such as Kindred Biosciences (KIN), Keryx Biopharmaceuticals (KERX) and Aveo Pharmaceuticals (AVEO).
Baupost's track record in this space has been exceptionally good. It invests in companies with solid drug candidates in the pipeline, makes numerous bets, and doesn't over-concentrate in one area. The winners are usually triple-digit home runs that more than make up for the duds.
The firm also made some bets on energy during the quarter, with a new interest in PBF Energy (PBF) and a huge stake in Cheniere Energy (LNG). Interestingly enough, these are not oil-related energy stocks but businesses focused on petrochemicals and liquefied natural gas. PBF currently fetches less than 8x earnings and yields 4.4%. What's interesting about PBF is that the company recently spun off a logistics company PBF Logistics (PBFX), which is structured as a limited partnership and yields 5.1%. PBF Energy still retains a majority stake in the logistics business.
Bruce Berkowitz at Fairholme Capital Management still has a concentrated portfolio. Recently, he has been adding to his stake in Sears Holdings (SHLD). What's very interesting about SHLD is that approximately 90% of the available float -- shares not held by investors like Berkowitz -- are held short. So you have a highly shorted stock, savvy investors like Berkowtiz who are long and a great capital allocator like CEO Eddie Lampert working to unlock value. Sears Holding could be the ultimate short squeeze play.
Not surprisingly, the value investors I follow are buying less and less these days. More notable is that many of them are making more concentrated bets, a potential sign that the quantity of ideas is shrinking, but the quality of those that are attractive is leading to the concentration. In any case, now is certainly a good time to focus on these ideas.