Earnings Season Unleashed: What Wall Street’s Smartest Money Managers Are Buying and Selling
The wait is finally over! Earnings season has kicked off, and investors are eager to dive into the latest quarterly reports from S&P 500 companies. But there’s more to the story than just earnings reports. Institutional investors with over $100 million in assets under management have filed their Form 13F with the Securities and Exchange Commission, providing a glimpse into their investment strategies.
Uncovering Hidden Gems
One of the most prominent asset managers, billionaire Seth Klarman, CEO of Baupost Group, has been making some significant moves in the second quarter. Klarman, known for his value-focused investment philosophy, oversees $3.6 billion in invested assets across nearly two dozen holdings.
A Surprising Sell-Off
Klarman’s most notable move was to drastically reduce Baupost’s stake in Alphabet, the parent company of Google. In just three months, Baupost sold off 1,888,064 shares, representing a 64% reduction. But why? There are several possible explanations. With the S&P 500’s Shiller price-to-earnings ratio at an all-time high, Klarman may be concerned about the stock market’s pricey valuation. Additionally, Alphabet’s valuation may be another tipping point, as its shares are no longer the bargain they once were relative to its cash flow.
A New Favorite Emerges
On the other hand, Klarman and his team have been piling into an off-the-radar drug stock, Jazz Pharmaceuticals. During the second quarter, Baupost added 440,552 shares of Jazz, increasing its stake by 53%. As of mid-2024, Jazz was Baupost’s ninth-largest holding, worth $136 million. So, what’s behind Klarman’s interest in Jazz?
Jazz’s Winning Formula
Jazz’s oxybate franchise, which includes Xyrem and Xywav, are the company’s bread and butter. Xywav, a sleep-disorder therapy with 92% less sodium than Xyrem, is an ideal treatment for people with cardiovascular concerns. Additionally, Jazz’s cannabidiol-based therapy, Epidiolex, is expected to reach blockbuster status, with limited competition and steady double-digit sales growth.
A Robust Pipeline
Jazz’s oncology segment has also topped $1 billion in annual sales for the first time, fueled by injectable therapy Rylaze. The company’s pipeline features over 30 clinical trials, including label expansion opportunities for Epidiolex and a focus on small-cell lung cancer, breast cancer, and acute myeloid leukemia.
A Value Play
Despite concerns about Avadel Pharmaceuticals eating into Jazz’s dominance in the sleep disorder space, shares of Jazz are valued at a 32% discount to the company’s average forward P/E over the trailing-five-year period. With a strong pipeline and steady long-term growth, Jazz may be a hidden gem waiting to be uncovered.
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