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Seth Klarman Is Betting on These Stocks

Sunday - 6/30/2013, 3:25am  ET

According to Bloomberg, the Baupost Group is ranked fourth in terms of net gains since inception. It's run by Seth Klarman, a famed value investor, who uses risk-averse value investing strategies to stomp the market.  His fund has generated an average return of 20% per year over the last 31 year's. Baupost has nearly $28.1 billion in assets under management as of March 31.  Now that it has filed its 13F with the SEC, we can see its top holdings.

Company

Percentage Holding

BP

23.33%

ViaSat

17.14%

American International Group

14.8%

Increasing stake in Russian Oil

In March, BP had divested its 50% stake in TNK-BP to Rosneft, the largest Russian oil company, for $16.65 billion in cash and an additional 12.84% stake in Rosneft. BP was previously holding a 6.91% stake, and now, it holds almost 20% of the company. BP is now the second largest stakeholder after the Russian government.

In the first quarter, Rosneft produced 4.8 million barrels of oil per day, or MMbpd, and BP expects Rosneft, with its advanced technology, to further increase production. It has also planned to explore the Russian shale oil reserve, which will enhance its net earnings by around 145% to $29.44 billion this year.

BP has planned for capital expenditures of $2.85 billion in one of the largest oil fields in the world, Rumaila, Iraq. It's planning to upgrade and expand its equipment and facilities to increase its oil production in this region.  Over the next 5 years, BP will drill 300 new oil wells in this region, and out of this, approximately 150 new oil wells will be drilled in the second half of this year.  By developing the Rumaila oilfield, BP expects an output of around 1.35 MMbpd over the next 3 years.

Exede leading from front

With the growing demand for high speed internet services, ViaSat has increased the speed and capacity of its satellite internet service “Exede” by 10 times. The service reported 22% sequential growth in its net subscriber base, adding around 46,000 subscribers. This growth was mainly driven by its retail channel segment.

The company is also looking to capture growth opportunities by providing services based on its proprietary intellectual property. Exede is expected to increase its net subscriber base to 205,000 in 2014 compared to 127,100 this year. The company also expects its revenue to grow by 46% to $403.1 million by 2014.

ViaSat has signed a $20 million deal with JetBlue Airways. The company will offer its Exede in-flight satellite terminal services on JetBlue commercial planes. This in-flight service is designed to provide improved internet access to airline passengers, equivalent to the quality of broadband. This service will be added to more than 160 JetBlue aircrafts at a speed of 12 Mbps.  ViaSat anticipates a 20% revenue gain, to exceed $1.33 billion, in 2014.

Divestiture with debt restructuring

AIG plans to improve its operating margin by focusing on its main core insurance business and reducing its debt load.  In December, the company divested 80% of its wholly owned subsidiary, International Lease Finance Corporation, or ILFC, for $4.23 billion. ILFC is AIG’s aircraft leasing unit.

The company plans to sell an additional 9.9% of ILFC by July 31, 2013 for a total of $5.28 billion, it will retain a 10% ILFC stake. The remaining stake will contribute $40 million to AIG’s annual earnings. The company considers this divestiture a positive move, as it will enable it to apply these funds toward the enhancement of its core insurance business. With these moves AIG will enhance its EPS to $4.10 this year and $4.85 by 2014.  Currently AIG is earning $3.93 per share.

AIG is looking to reduce its interest burden and improve its interest coverage ratio. In March, it redeemed 7.7% Series A-5 Junior Subordinated Notes due in 2047, amounting to $1.1 billion. Furthermore, on June 17, 2013, it also redeemed the entire outstanding balance of 6.45% Series A-4 Junior Subordinated Notes, at 100% principal amount, with accrued interest on it. These debentures were of worth around $750 million.

Because of these redemptions, the company has reduced its interest burden by more than $100 million annually. It will use these savings to enhance its core insurance business, which should help it generate more growth opportunities.

Conclusion

BP’s strategy of increasing its stake in Rosneft and expanding its production in Rumaila will support increasing company revenue.  ViaSat’s performed well in the last quarter and it expects to do better in the years ahead.  AIG’s debt restructuring plan and divestiture of ILFS will improve its operating margin, and will allow the company to focus on its core insurance business.

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