Invest with Wall Street legend Seth Klarman: 2 new stocks he bought and 1 he dumped

Enigmatic investment legend Seth Klarman runs the Boston-based firm Baupost Group hedge fund that has around $27 billion in assets under management.

The billionaire is a value investor in the vein of Benjamin Graham, considered the father of value investing. Warren Buffett is also a Graham disciple. However, where the Oracle of Omaha likes to be out front giving speeches and publicly sharing his investment wisdom, Klarman is much more elusive and rarely gives addresses.

However, for investors who want to learn the wisdom of this great Wall Street man, whose hedge fund has generated annual returns of around 20% since its inception in 1982, they can pick up a copy of his cult classic book. Safety margin that will set you back a cool $3,000 on Amazon. And that’s for used copy.

Klarman owns about two dozen shares in Baupost Group, but recently announced a shift in focus. Conformable HedgeWeekthe billionaire sent a letter to investors announcing that he is the restructuring of the speculative fund to focus closely on stocks and real estate. He would also increase his “exposure to distressed debt, special situations, event-driven actions, private equity and equity solutions.”

To do this, it made a number of new stock purchases while selling others. Below are two of his biggest purchases and one of his biggest sales.

Key points about this article:

• Renowned value investor Seth Klarman tends to shy away from the public spotlight, but he lets his investment success speak for itself. His Blaupost Group has annualized returns of 20% since 1982.
• Klarman is changing the focus of his hedge fund to focus on certain areas, meaning he bought more new stocks in line with his new thinking while shedding others from the portfolio.
• If you’re looking for action with huge potential, be sure to grab our free copy brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

Purchase of shares no. 1: Human (HUM)

Humana sign on the world headquarters building

Health insurance Humane (NYSE:HUM) was the largest new addition to Klarman’s portfolio. He bought 420,000 shares that are currently valued at $157 million, good for 4% of Baupost’s total holdings, making it the eighth largest. With an average purchase price of $360, Klarman is down 13% at the moment.

There are good reasons to believe that this may change for the better in the future. Healthcare stocks like Humana are currently depressed due to uncertainty surrounding the Medicare Advantage program and its changing admissions rules and reimbursement rates. Swan (NYSE:CI), for example, just sold its Medicare Advantage business for $3.7 billion to free itself from the vagaries of compliance.

Because Humana is paid at the same rate as traditional Medicare insurers, it tries to improve policyholders’ health while offering additional benefits in an effort to be profitable. So they try to place users with doctors who offer value-based arrangements, incentivizing them to provide better care and lower costs.

Since Humana owns the largest home health care practice, it sees this as a key competitive advantage. Given the demographic trends in the US and how deeply Medicare Advantage penetrates the market, this is a major growth opportunity for Humana going forward.

Solventum (SOLV)

Healthcare worker with care of medical supplies

Manufacturer of medical products Solventum (NYSE: SOLV ) was Klarman’s second-largest purchase in the second quarter, buying 1.8 million shares valued at $96 million. It represents 2.7% of the portfolio, but with an average purchase price of $16 per share, it has a 14% year-to-date gain.

Solventum is relatively new on the market, having been spun off from the industrial conglomerate in April 3M (NYSE:MMM). It started inauspiciously. Shares started trading at around $69 each and fell quickly, eventually falling to $47 per stub.However, since the low, SOLV stock has risen nearly 50%, even though it is still in the red from the breakup.

The company is one of the largest suppliers of medical supplies such as sterilization devices, dressings, tapes and other consumables. It generated an estimated $8.2 billion for 3M in 2023, with organic sales growing 1.3% in 2024.

One of Solventum’s biggest problems weighing it down is the debt that 3M has saddled it with. At the end of the second quarter it had $8.3 billion in long-term debt and just $897 million in cash and cash equivalents. However, management is focused on reducing this figure over the next two years. It also raised its guidance for the full year.

The company is looking for organic sales growth of up to 1%, with adjusted earnings of $6.30 to $6.50 per share, compared to its previous forecast of up to 2% decline in sales and adjusted earnings of 6, $10 to $6.40 per share.

With in-store sales and profit growth and management committed to reducing debt, Solventum looks like a good long-term winner.

Stock sale no. 1: Theravance Biopharma (TBPH)

A female researcher looking into a microscope

Klarman completely sold its significant stake in the biopharma stock Theravance Biopharma (NASDAQ:TBPH). He owned 4.2 million shares and sold them at an average price of $8.25 per share.

While the selloff likely has more to do with Baupost Group’s change in direction than anything wrong with the company, Theravance stock is down 30% year to date. Klarman still owns biotech stocks, including Jazz Pharmaceuticals (NASDAQ:JAZZ) (a top 10 holding company) and Fortrea Holdings (NASDAQ:FTRE). Notably, those positions are also in the red by double-digit percentages.

While Theravance has more therapies on the market, the company is still making significant losses. Investors had hoped its range of treatments could pare losses, but were disappointed when the biotech reported a Phase 2 trial of isencitinib, a drug for ulcerative colitis, failed to meet its goals. As it happened after Klarman sold his shares, he was spared the stock’s 34% drop in a single day.

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