Sham Gad

Stock quotes in this article:

bxe

semi

sune

I can think of no better way to find great investment ideas than to look at what other great investors are buying. I find Seth Klarman, founder of the Baupost Group, as one of the greatest investors today.

While Warren Buffett may still take the headlines, Klarman has been compounding capital at close to 20% a year for more than 20 years. Because he doesn’t pursue activism, you rarely hear about him, but his track record speaks for itself.

Baupost reported two new positions last month, one being an oil company. With the price of oil down by over 50%, I have been waiting to see when the value investors might start jumping in. Baupost did with a new stake in Bellatrix Exploration (BXE), a Canadian oil and gas exploration company.

Shares in BXE trade for $2.50, compared with over $10 a year ago. The current share price values the company at $450 million against tangible equity of over $850 million. Baupost purchased 21 million shares and owns more than 11% of the company. If these shares were purchased in open market transaction — likely the case — then Baupost was buying at prices well above today’s price.

Baupost also added a new stake in semiconductor company, SunEdison Semiconductor (SEMI), an $820 million developer and seller of silicon wafers. Readers should note that SunEdison Semiconductor is a subsidiary of SunEdision, Inc. (SUNE), also a publicly-traded company, so as not to get the two confused. This investment shows, at least in Baupost’s view, that value is not simply about statistical analysis. SunEdison Semiconductor is not profitable, carries a little debt and trades at a premium to book value.

Yet any investment is not made based on past or current data, but future performance. Over the past three years, SEMI has spent a ton of cash on capital expenditures. I would only guess that they have invested heavily in product development and over the next few years, cash flow will start to pour in.

Net losses have declined from $1.5 billion to $600 million from 2011 to 2013. Over the same period, capital expenditures have declined from $1 billion to $600 million. Baupost purchased nearly 20% of SunEdison, representing a $200 million stake, implying a rather strong conviction in the company.

There you have it — your stock screen for the day, week, or even month. Among tens of thousands of securities, one of best investors has chosen two more. Ignore the headlines and drill down on these two names. A multi-bagger could be in plain sight.

At the time of publication Gad had no positions in stocks mentioned.