--- title: "Baupost Group's Latest Portfolio Changes (Q2 2025)" author: "DeepValues Research" publisher: "DeepValues Research (DeepValues / LuLu Ventures LLC)" type: "Research article" date: "2026-02-20" language: "en" section: "Guru Attention" answer: "DeepValues Research, “Baupost Group's Latest Portfolio Changes (Q2 2025)” (Feb 20, 2026): New Positions Added: Seth Klarman's Baupost Group initiated three new stock positions in Q2 2025 ." canonical_url: "https://research.deepvalues.ai/gurus/baupost-groups-latest-portfolio-changes-q2-2025/" markdown_url: "https://research.deepvalues.ai/gurus/baupost-groups-latest-portfolio-changes-q2-2025/index.md" license: "CC BY 4.0" license_url: "https://creativecommons.org/licenses/by/4.0/" cite_as: "DeepValues Research, Baupost Group's Latest Portfolio Changes (Q2 2025), https://research.deepvalues.ai/gurus/baupost-groups-latest-portfolio-changes-q2-2025/" publisher_url: "https://deepvalues.ai" app: "https://deepvalues.ai" api: "https://app.deepvalues.ai/developers" data_note: "Reports are dated snapshots. Current data via the DeepValues API: https://app.deepvalues.ai/developers" disclaimer: "Educational research, not investment advice." --- ## **Baupost Group's Latest Portfolio Changes (Q2 2025)** **New Positions Added:** Seth Klarman's Baupost Group initiated three new stock positions in Q2 2025 . The largest addition was **Fiserv, Inc.** (NYSE: FI) - 895,000 shares (\~3.75% of the portfolio, \~$154.3 million value) . **Amcor PLC**(NYSE: AMCR) was the second new buy (5.5 million shares, \~1.23% of portfolio, \~$50.6 million) . The third was **PagSeguro Digital** (NYSE: PAGS), a Brazilian fintech, at 2.5 million shares (\~0.59% of portfolio, $24.1 million) . These new stakes indicate Klarman saw significant value in financial/payment services this quarter. **Major Increases in Existing Holdings:** Nine existing positions were boosted . Notably, Baupost more than doubled its **Elevance Health (ELV)** stake - adding 370,000 shares (+150.4% share count) to a total of 616,000 shares . This increase made Elevance 3.5% of the portfolio ($239.6 million) . The fund also expanded its **CRH PLC** holding by 1.131 million shares (+42% to 3.83 million shares, \~$351.2 million value) . In addition, Baupost significantly added to big-cap names: **Alphabet (GOOG)** by 556,000 shares (+27% to 2.63 million shares, \~$467.2 million) - now the fund's largest holding at \~11.4% of the portfolio . **Dollar General (DG)** was increased by 562,000 shares (+27%), bringing its value to \~$305 million (\~7.4% of the portfolio) . Smaller increases (notably \~+10% in **Wesco International (WCC)**, now \~9.9% of the fund) were also made. These moves signal Klarman's confidence in these companies' prospects - particularly Alphabet (a top holding) and a turnaround bet on Dollar General. **Positions Completely Sold:** Baupost **exited three holdings entirely** . The fund sold all 1,053,240 shares of **Solventum Corp. (SOLV)** (a former healthcare spinoff) and all 10,777,863 shares of **Clarivate PLC (CLVT)** , which had been smaller positions - their sale removed \~2.3% and \~1.2% of the portfolio value, respectively . Baupost also eliminated its stake in **SomniGroup International**, fully divesting that holding . Klarman's complete exit from these names suggests a lack of confidence in their future returns or a decision to reallocate capital to higher-conviction ideas. **Reductions in Key Holdings:** Four other positions were trimmed . The largest cut was **Willis Towers Watson (WTW)** - sold \~211,500 shares (-13.9% of WTW stake, -2.05% impact on portfolio) . **Eagle Materials (EXP)** was also reduced by \~233,000 shares (-25.7%, -1.49% portfolio impact) . These sales locked in some gains (WTW shares traded around $310 during Q2 ) and possibly reflect profit-taking or reevaluated intrinsic value. Two smaller positions were also pared down (not explicitly named in the report, likely minor holdings). Despite these trims, Baupost's **overall portfolio value rose \~18% in the quarter to $4.13 billion**, with **23 stock holdings** after Q2 (unchanged count) . The top five positions at quarter-end were Alphabet (11.4% of portfolio), Wesco (9.9%), Willis Towers (9.8%), CRH (8.5%), and Fidelity National Information Services (7.5%) . The concentration in a few large holdings and selective new buys illustrates Klarman's continued "high-conviction, value-driven" strategy - holding cash until bargains arise and then investing heavily in them. ## **Buffett-Style Quality Check of Major Holdings and Additions** Next, we evaluate each of these companies against **Warren Buffett's criteria for a "great company,"** including value metrics, cash generation, growth consistency, financial strength, and profitability. Each company is assessed on key metrics (with Buffett's typical thresholds in **bold**), noting whether they **pass (✓)** or **fail (✗)** each standard: - **Fiserv (FI)** - *Fintech/Payments Technology*. > **Valuation:** Fiserv's trailing **P/E \~22.5** and **P/B \~2.9** far exceed Buffett's limits (≤15 and ≤1.5) , so **✗ fails** the strict value discipline. However, on a forward basis P/E is \~13, reflecting rising earnings . We also note Klarman paid an estimated \~$172/share, implying he saw value despite a high trailing P/E. **Margin of Safety:** The stock was not trading 25% below any conservative intrinsic value at purchase - in fact, it trades at \~3.6× sales , suggesting no obvious deep discount **(✗)**. > **Cash Generation:** Fiserv is a reliable cash generator. Free cash flow (FCF) has been **positive every year**; TTM FCF was $4.37 B (levered) , \~**21%** of revenue (well above 5% threshold ✓). Its FCF grew irregularly - e.g. +34% in 2024 , but there were flat years (2017-2018 saw a slight FCF dip). Still, FCF > $3B even in 2020 , so **✓ passes**"consistent positive FCF." **Return on Retained Earnings:** With high reinvestment via acquisitions, Fiserv's ROE is \~13% (TTM) - a bit below Buffett's \~15% ideal, and it's unclear if each dollar retained yields >12% return **(✗ borderline)**. > **Growth & Predictability:** Fiserv's **EPS has grown overall** (from \~$0.82 in 2011 to \~$5.38 in 2024 ), but **not every year** - e.g. EPS dipped in 2018 and 2019 due to merger accounting . So it **fails** the "10-year uninterrupted EPS rise" test **(✗)**. Book value per share has grown (via retained earnings), but large acquisitions (First Data in 2019) and buybacks distort equity - book value did not rise consistently each year **(✗)**. **Owner's Earnings:** Fiserv's owner earnings (approx. FCF) are solidly positive annually (over $4 B TTM) , but relative to its $73 B market cap, the owner earnings yield is \~6% - **below** the ≥10% desired **(✗)**. > **Balance Sheet Safety:** Its **Debt-to-Equity is high at \~115%** (D/E >1.1) , **failing** the <0.5 rule. The company took on debt for acquisitions, so leverage is elevated. Interest coverage is adequate - EBIT covers interest \~5-6×, and interest expense is \~18% of operating income (above Buffett's 15% cap) **(✗)**. The **current ratio \~1.1** is below 1.5 **(✗)**, but as a software-like business Fiserv doesn't require heavy working capital. > **Profitability:** Fiserv's **gross margin \~61%** (post-merger) easily **✓ passes** the 40% benchmark . **Net margin \~16%**is below 20% **(✗)**, reflecting amortization of intangibles and integration costs. **ROE** has averaged in the low teens (\~12-14%) in recent years (good, but short of 15% ten-year avg **✗**) and **ROA \~4.5%** is well under 6% **(✗)** (due to high goodwill on the balance sheet). **ROIC** is not explicitly given, but likely around 8-10%, below Buffett's 12% ideal **(✗)**. Fiserv's business does benefit from scale and switching costs, but by these strict metrics it **does not fully meet Buffett's "great company" criteria** - mainly failing on valuation and leverage. Its strengths are strong cash flow and high gross margins, but other metrics are only average. - **Alphabet (GOOGL/GOOG)** - *Internet/Search Giant*. > **Valuation:** Alphabet's **P/E \~21** (TTM) is above 15, so **✗ fails** Buffett's valuation test . Its **P/B \~6.8** is also far above 1.5 **(✗)** - unsurprising for a dominant tech firm with relatively low book equity. No obvious 25% margin of safety was present; shares trade at \~21× earnings, more "fair" than "cheap." > **Cash Generation:** Alphabet is a cash machine - generating **>$60-70 B in FCF annually** . FCF has been positive and hefty every year in the past decade. In fact, **FCF/Revenue ≈ 20-25%**, easily **✓ exceeding 5%**. For example, FY2024 free cash flow was $72.8 B on $257 B revenue . **Return on retained capital** is strong: Alphabet has reinvested profits into cloud, R&D, etc., yet maintains ROE around \~17-20% and huge excess cash, indicating retained earnings have yielded high returns **(✓)**. > **Growth & Predictability:** Alphabet's **EPS growth over 10 years has been tremendous (\~22% CAGR)**, but **not strictly upward every year**. Notably, 2022 EPS fell - EPS $5.80 in 2023 was down \~18% from $7.11 in 2021 (2021 was an outlier boom). This breaks the "every year up" rule **(✗)**, though overall trend is strongly upward. Book value per share has grown consistently (thanks to retained profits; no dividend), with no year of decline in equity - **✓ passes** that stability test. **Owner's earnings:** Always positive and large (net income $100 B in 2024, owner earnings similar). The **owner earnings yield \~4%** (e.g. $100 B on \~$2.46 trillion market cap ) - well below 10% **(✗)**, reflecting a premium price. > **Balance Sheet Safety:** Alphabet is **extremely solid financially (✓)**. It carries **minimal debt** (D/E \~0.05, effectively debt-free). It holds over $100 B in cash, so **interest coverage is a non-issue (✓)**. **Interest expense is near zero relative to EBIT (✓)**. **Current ratio** is very high (Google's current assets \~3× current liabilities), far above 1.5 **(✓)**. > **Profitability:** Alphabet boasts **\~55% gross margins** (for example, \~58% in 2021, slightly lower in 2022-24 due to higher cost of sales/TAC) - comfortably **✓ above 40%**. Its **net profit margin \~29%** in 2024 also **✓ exceeds 20%**, reflecting its lucrative ad business. **ROE** averages around 17-20% (last year \~16-17% ) - generally **✓ in Buffett's 15% zone**. **ROIC** is high (exact figure depends on definition, but with little debt, ROIC \~ ROA \~17%, easily above 12% **✓**). **ROA \~16.8%** is well above 6% **(✓)**. **Depreciation vs. Gross Profit:** Alphabet invests heavily in data centers, so depreciation is significant, but still a modest fraction of gross profit (in 2024, D&A \~$19 B vs gross profit \~$156 B, \~12%) - a bit above 10% **(slight ✗)**. Overall, Alphabet **meets most of Buffett's quality criteria**(wide moat, high margins, high returns), **except on the valuation front**. The stock's price is too high to qualify as a "bargain" by Buffett standards, even though the business itself is excellent. (Klarman nonetheless increased his stake, likely viewing Alphabet as a long-term compounder worth paying up for.) - **Dollar General (DG)** - *Retailer (Discount Stores)*. > **Valuation:** Dollar General's stock plunged \~50% over the last year, improving its multiples. Its **trailing P/E \~22**(after a recent earnings drop) is slightly above 15 **(✗)**. Forward P/E \~21 suggests limited earnings growth near-term . **P/B \~3.3** is well above 1.5 **(✗)** (the company has negative tangible book due to buybacks and lease accounting). Despite the sell-off, shares were not at a 25% margin of safety to a clear intrinsic value - DG traded around $115 (still \~18× normalized earnings) so **✗ no obvious deep discount**. > **Cash Generation:** Dollar General has **positive free cash flow most years**, but its cash generation has weakened recently. TTM levered FCF is \~$1.64 B , about 5.5% of $30 B revenue - **✓ just above 5%**. However, heavy investments in new stores and inventory can swing FCF. In the past 10 years, FCF was positive each year, though it dipped as the company expanded aggressively. **Return on retained earnings**: Historically DG earned high returns opening new stores (ROE often 20-25%). Recently, returns have shrunk (see ROE \~15.7% TTM ) as profit margins fell. It's unclear if each dollar reinvested now yields ≥12%, especially with cost pressures **(✗ questionable)**. > **Growth & Predictability:** **EPS growth was very steady for about 10 years** - DG grew EPS every year from 2010 through 2021 at a \~16% CAGR. This streak **broke in 2022-2023**, when earnings declined amid rising costs and weaker demand. For example, FY2024 (ended Jan. 2024) EPS fell \~20%. Thus DG **fails the "every year EPS up" test (✗)**, though prior history was strong. Book value per share has *not* grown consistently - DG returns most earnings via buybacks and dividends, and recently accumulated debt caused **shareholders' equity to shrink**. In fact, book value turned negative in 2023 due to liabilities and buybacks, so **✗ fails BVPS growth**. **Owner's earnings:** Positive each year (DG is profitable even in downturns), but currently **market cap $25 B vs \~$1.3 B FCF gives only \~5% owners' yield** **(✗ <10%)**. > **Balance Sheet Safety:** **Debt-to-Equity is high** because equity is low - **D/E \~220%** (debt $17 B vs equity \~$7.7 B) **(✗)**. Including lease obligations, leverage is even higher. Interest coverage is still adequate (EBIT covers interest \~4-5×), but interest expense is roughly **\~20% of operating income (✗)** - above Buffett's 15% ceiling, reflecting increased debt and interest rates. The **current ratio \~1.23** is below 1.5 **(✗)**; discounters turn inventory quickly and operate with low working capital, but this ratio is a bit low, indicating some liquidity tightness as sales slowed. > **Profitability:** DG's **gross margin \~30%** **✗ falls short** of 40% (retail is a low-margin business). Its **net margin has shrunk to \~2.8%** TTM , drastically below 20% **(✗)**. (At its peak, DG's net margin was \~7%, still far under Buffett's 20% threshold.) **ROE** averaged well above 15% historically (boosted by leverage and buybacks), but TTM ROE is \~15.7% - barely meeting the cutoff **(✓ borderline)**. **ROA \~4%** recently **(✗)**, reflecting slim margins on substantial assets (stores, inventory). **ROIC** over 10 years was strong (\~15%+) when growth was smooth, but current ROIC \~5% (with margin compression) **(✗)**. In sum, Dollar General's **fundamentals have deteriorated** in the last 1-2 years, so by Buffett's standards it **fails on most quality metrics (low margins, high debt)**. It was a great growth story with high returns on capital, but not a high-margin franchise. Klarman's increased stake suggests he believes the market overreacted to short-term issues and that DG will regain its footing (improving its earnings and returns). As of now, however, DG **does not meet Buffett's criteria for a wonderful company**, though its price has come closer to "value" territory than in the past. - **Elevance Health (ELV)** - *Health Insurance (formerly Anthem)*. > **Valuation:** Elevance trades at a modest **P/E \~12.5** (TTM) , which **✓ passes** the ≤15 test. Its **P/B \~1.5** (around 1.51 per stockanalysis) is right at Buffett's cutoff **(✓ borderline)** - the insurer's book value has grown, and the market is valuing it about 1.5× book. The stock doesn't appear to have a huge margin of safety beyond that - it's reasonably valued rather than deeply undervalued. (At \~$440/share, it's near fair value by market estimates, not <75% of intrinsic **✗**.) > **Cash Generation:** As an insurer, Elevance's accounting cash flow can fluctuate with claim payments, but it consistently generates positive free cash over time. Net income was \~$6 B in 2024, and free cash flow tends to track earnings (since capex is low). FCF is reliably positive each year (✓). However, **FCF/Revenue is low (\~5% or less)**- for instance, profit margin \~2.8% on \~$156 B revenue in 2024 implies FCF/Rev only \~3-4% **(✗)**. **Return on retained earnings:** The company has used retained earnings for acquisitions (e.g. health plans) and buybacks. Its ROE \~16% suggests decent returns on reinvested capital **(✓)** - in line with Buffett's \~15% benchmark. > **Growth & Predictability:** Elevance's **EPS trend has been generally upward** but not every single year. Over the past decade, EPS grew from \~$8 in 2013 to $25 in 2023 . There was a \*minor EPS dip (-2.7%)\* in 2022 , breaking the streak **(✗)**. Otherwise, growth has been steady in mid-single-digits (recent EPS up \~4% in 2023 ). **Book value per share** has grown at \~10% annually and **never had a full-year decline (✓)** - the insurer consistently retained earnings, boosting equity. **Owner's earnings:** Always positive; owner earnings (net income + depreciation - capex) \~ net income here (little capex). At \~$65 B market cap, $6 B in owner earnings is \~9% yield - just under 10% **(✗)**. > **Balance Sheet Safety:** **D/E \~0.69** (68.8% debt-to-equity) , which is above 0.5 **(✗)**. However, for an insurance company this includes some debt used for capital and is not excessively high (many insurers operate \~40-80% D/E). **Interest coverage \~7-8×** is healthy (EBIT easily covers interest) **(✓)**, and interest expense is \~13% of operating income (within Buffett's 15% limit) **(✓)**. **Current ratio \~1.45** , slightly below 1.5 **(✗)** - insurers have significant current liabilities (claims), but also large investment portfolios; liquidity isn't an issue. > **Profitability:** Health insurers are low-margin businesses. Elevance's **gross margin \~16%** in 2024 (if we consider revenue minus medical claims as "gross profit") **✗ falls short** of 40%. Its **net margin \~2.8%** is far below 20% **(✗)**(even at peak, Anthem's net margin \~4-5%). **ROE \~16%** (TTM) **(✓)** meets the 15% benchmark, aided by some leverage and share buybacks. **ROIC** (return on invested capital) has been around 10% historically - slightly under the 12% target **(✗)**. **ROA \~4.6%** **(✗)** reflects the slim margins on a large asset base (float investments). On the bright side, depreciation is negligible for an insurer (most costs are payouts and SG&A), so **Depreciation/Gross Profit <10% (✓)** by nature. Overall, **Elevance just about meets Buffett's standards on valuation and ROE, but fails on margin criteria** (as do most insurance companies). It's a stable, moderately growing business with a strong market position, but not a high-margin "great" company in Buffett's sense. Klarman's large increase in ELV likely reflects its low valuation and defensive qualities rather than Buffett-like economics. - **CRH Plc (CRH)** - *Building Materials & Cement*. > **Valuation:** CRH's U.S.-listed shares trade around \~$50. Its **P/E \~23.4** TTM is above 15 **(✗)**, though forward P/E \~19.6 is a bit lower . Its **P/B \~0.74** (D/E \~74% means assets \~3.7× equity) appears low in absolute terms, but given heavy tangible assets, P/B under 1 could signal undervaluation **(✓)**. Indeed, CRH's price-to-book of \~0.8 suggests the market values it below replacement cost of assets - possibly a margin of safety if those assets produce decent earnings. However, cyclical earnings make P/E high at the moment. There may be a margin of safety here (stock off highs, trading under book), but not a clear 25% discount to conservative intrinsic value based on earnings **(mixed)**. > **Cash Generation:** CRH generates solid free cash flow through cycles. TTM **levered FCF \~$2.07 B** , about 9% of its \~$23 B revenue (FY2024) - **✓ comfortably above 5%**. In downturns (e.g. 2020), cash flow can dip, but CRH remained FCF-positive even in weaker years. **Return on retained earnings:** CRH often uses cash for acquisitions and capex in new markets. Its ROE tends to be \~10-12% in good times, lower in bad. Over a cycle it's not clear that retained profits consistently yield >12% returns - likely **✗ borderline**, as the industry's cyclicality drags down average ROE. > **Growth & Predictability:** CRH's earnings are **cyclical**, tied to construction demand. Over 10 years, EPS has grown (helped by acquisitions and U.S. infrastructure growth) but **with fluctuations**. For example, EPS fell in years of construction recessions and then rose in boom years - so it **fails the "every year increasing EPS" test (✗)**. Book value per share has grown in the long term (retained earnings plus asset revaluations), but CRH has had years where currency and write-downs caused equity to dip **(✗ no unbroken BVPS growth)**. **Owner's earnings:**positive each year (CRH has been profitable consistently), and at the current price the FCF yield is around 5-6%. That's below 10% **(✗)**, but higher than many peers, reflecting a somewhat modest valuation. > **Balance Sheet Safety:** **D/E \~0.74** (74% debt/equity) , higher than Buffett's preference **(✗)**. However, in asset-heavy industries some debt is common; CRH's net debt/EBITDA \~1.1× is actually quite reasonable . **Interest coverage** is strong - EBIT covers interest \~10×, and interest expense is only \~8% of operating profit (well under 15%) **(✓)**. **Current ratio \~1.74** , which **✓ exceeds 1.5**, indicating acceptable short-term liquidity. > **Profitability:** Building materials typically have moderate margins. CRH's **gross margin \~35.6%** is just below 40% **(✗)** - decent for its industry (cement, aggregates). **Net margin \~9.1%** is far below 20% **(✗)**, reflecting significant costs and only moderate pricing power. **ROE** in 2024 was around 12-15% (and averaged \~10% over the last decade) - **✗ slightly under 15%** on average. **ROIC** has been roughly 8-10% historically (sometimes lower in downturns) **(✗)**. **ROA \~5-6%** in good years edges close to 6% (with 2024 around that range), but long-run ROA is a bit under 6% **(✗)**. **Depreciation/Gross Profit:** CRH has heavy depreciation (plant, equipment); depreciation \~$1.3 B annually versus \~$8 B gross profit - about 16% 【42†L9-L12\*\* (✗)\*\*. Overall, **CRH falls short of Buffett's "great company" standards** - it's a cyclical, capital-intensive business with modest margins and returns. However, it might attract a value investor like Klarman because it's **cheaply valued for an industry leader (global \#1 in building materials)** and offers a potential upside when infrastructure spending rises. In Buffett terms, CRH would be a **"fair company at a wonderful price,"** rather than a wonderful company. - **Amcor PLC (AMCR)** - *Global Packaging Producer*. > **Valuation:** Amcor's stock (around $9-10) has a **P/E \~17.3** TTM , above 15 **(✗)**. Its **P/B \~3.5** is also well above 1.5 **(✗)** (due to goodwill from past mergers). The stock yields a \~5% dividend, which suggests it's valued more for income than deep value. It's not trading 25% below a clear intrinsic value - more like at a reasonable, slightly high multiple for a slow-growth business **(✗ no big margin of safety)**. (Morningstar estimated fair value \~$11 vs $9.9 market - only \~10% discount.) > **Cash Generation:** Amcor generates steady if unspectacular free cash flow. In FY2024 it had about **$829 M free cash flow** , which is \~6% of its $14 B sales - **✓ just above 5%** FCF/Revenue. FCF has been positive each year; even during downturns, Amcor's scale and cost-cutting keep cash flow in the black. **Return on retained earnings:**The company distributes a high portion of earnings as dividends (payout \~70%) and does acquisitions with the rest. Its ROE is \~18% (TTM) due to some leverage, but **true ROIC is around 8-9%**, so additional retained capital doesn't consistently earn >12% **(✗)**. > **Growth & Predictability:** Amcor's **EPS growth is low single-digit**. EPS has not risen every year - it fluctuates with raw material costs and foreign exchange. For example, adjusted EPS in FY2023 was flat and in FY2024 rose only \~2%. Thus it **fails the 10-year EPS growth streak test (✗)**. Book value per share has **not** grown consistently either; share buybacks and accounting adjustments often keep book value flat or declining (Amcor's equity is actually modest as they carry debt and goodwill - P/B >3). **Owner's earnings:** consistently positive (Amcor reliably earns profit and converts a good chunk to free cash). But at $22.8 B market cap, \~$0.83 B FCF is a \~3.6% yield **(✗)**, well under 10%. > **Balance Sheet Safety:** **D/E \~0.74** (as of FY2024, $6.7 B debt vs \~$9 B equity) - above 0.5 **(✗)**, though not extreme. Packaging is capital-intensive, so some debt is expected. **Interest coverage** is satisfactory: EBIT covers interest \~5×, and interest expense <15% of operating income (passes on coverage for now **✓**). **Current ratio \~1.3** - a bit below 1.5 **(✗)**, though inventory and receivables turn over steadily, so liquidity is manageable. > **Profitability:** Amcor's **gross margin \~20%** **(✗)** is well under 40%, reflecting a commoditized business (plastic and fiber packaging with thin spreads). **Net margin \~6%** **(✗)** is far below 20%. **ROE \~18%** looks good, but that is boosted by debt and intangibles; the **10-year average ROE** has been closer to \~15% (with fluctuations) - borderline **(✓/✗)**. **ROIC \~8-10%** historically **(✗)**, indicating only moderate efficiency. **ROA \~4.9%** **(✗)**, low due to heavy asset base. **Depreciation \~10-15% of gross profit** (capex heavy) - likely slightly above 10% threshold **(✗)**. In summary, **Amcor does not meet most of Buffett's quality criteria**. It's a stable, *average* company with low growth and modest returns on capital. Buffett typically avoids such low-moat, low-margin businesses unless they are *extremely* cheap - which Amcor is not. Klarman's purchase of Amcor may be driven by its reliable dividends and a belief that cost-cutting or industry consolidation could unlock value, but by Buffett's standards, Amcor is **not a wonderful company (just a decent business at a fair price)**. - **PagSeguro Digital (PAGS)** - *Brazilian Fintech/Payments*. > **Valuation:** PagSeguro's stock (\~$8-9) is down heavily from its peak, giving it a **P/E \~6.9** - **✓ far below 15**. Its **P/B \~0.9** is also **✓ under 1.5**, indicating a possibly **undervalued** situation. This low valuation suggests a margin of safety *if* the company's earnings are sustainable - the market is pricing in high risks. Indeed, at <7× earnings, one could argue the stock offers >25% MOS relative to intrinsic value (unless intrinsic value is impaired) **(✓)**. > **Cash Generation:** As a fintech, PagSeguro's cash flow can be volatile. In recent years, its operating cash flow has been **negative due to aggressive growth (increased lending and working capital)** . However, focusing on "owner earnings," the company is profitable (2024 net income \~$525 M). **FCF has not been consistently positive** (some years saw cash outflows as it expanded its credit offerings - e.g. levered FCF was -$1.28 B in mid-2025 ). **FCF/Revenue** was >5% during profitable periods but turned negative recently (so **✗ fails consistency**). This is a red flag under Buffett's criterion - an unstable cash generator. **Return on retained earnings:** PagSeguro retained all earnings (no dividend) to grow, achieving very high growth rates initially. Its **ROE \~15%** TTM and much higher in earlier years indicates it has found profitable opportunities historically (✓). But with growth slowing, it's uncertain if future retained earnings will earn >12%. > **Growth & Predictability:** PagSeguro was a high-growth disruptor - **EPS grew rapidly** from 2018 IPO through 2021. However, growth has *stalled recently* due to Brazil's economic slowdown and competition. EPS in 2022-2023 was roughly flat (and 2023 EPS only up \~9%). It **fails the 10-year EPS stability test (too young and volatile)** **(✗)**. Book value per share did increase each year since IPO (retained profits), until a write-off in 2022 reduced equity - there was at least one year of BVPS contraction **(✗)**. **Owner's earnings:** profitable each year since IPO, but heavy reinvestment means free cash flow was sometimes negative. At the current $2.9 B market cap, owner earnings \~$0.5 B gives an **earnings yield \~18%** (very high) - **✓ exceeds 10%**. This suggests a potential bargain if earnings are real and sustainable. > **Balance Sheet Safety:** **Debt-to-Equity \~0.24** (24%) - **✓ very low** leverage. PagSeguro mainly funds operations with customer deposits and equity. It has plenty of cash on hand relative to debt. **Interest coverage** is strong (the company has minimal debt interest; interest expense is very well covered by EBIT **✓**). **Current ratio \~1.42** - just under 1.5 **(✗)**, but this doesn't reflect its access to client float and liquid assets. Overall, **financial position is sound (✓)** with low debt. > **Profitability:** **Gross margin \~48%** - excellent and **✓ above 40%** (payments processing has high gross margins). However, **net margin \~11.5%** **(✗)** is below 20%, reflecting high marketing and credit loss costs. **ROE \~15%** - **✓ just meets** the 15% benchmark, and in earlier years ROE was >20%. **ROIC \~25%** in 2024 - impressively **✓ above 12%**, showing efficient use of capital (PagSeguro's model is light on fixed assets). **ROA \~6.3%** - right around the 6% mark **(✓ borderline)**, respectable given a large cash balance dragging ROA down. **Depreciation is minimal**(mostly software and point-of-sale devices), definitely <10% of gross profit **(✓)**. In essence, **PagSeguro meets many of Buffett's quality tests on paper - high margins (gross), high ROE/ROIC, low debt - except consistent earnings predictability**. Its **biggest issue is the uncertainty in its growth and cash flow**. The company's fundamentals are promising for a fintech, but Buffett would be wary of the lack of a stable long-term track record and the macroeconomic risks in Brazil. Klarman's bet on PAGS is likely a deep-value play: the stock is very cheap relative to its earnings power, albeit with higher risk. It **passes more criteria than one might expect**(unlike many fintechs, it's profitable with decent returns), but **fails the crucial tests of consistent track record and clear durable moat** that Buffett prioritizes. **Summary:** In Buffett's framework, **Alphabet** stands out as a great business (wide moat, high margins and returns) but was not cheap, whereas **PagSeguro** and possibly **CRH/Amcor** were cheap but not high-quality enough. **Fiserv and Elevance** are in between - good businesses with solid cash flows, but each has certain weaknesses (Fiserv's debt load, Elevance's low margins). **Dollar General** has strong past returns but is currently struggling with thin margins. Klarman's Q2 moves suggest he was willing to compromise on Buffett's ideal "quality" metrics if the **price** was right (e.g., PAGS, DG), while also adding to truly high-quality names (Alphabet) when opportunities arose. Warren Buffett himself might not invest in some of these companies due to their **deviations from his strict criteria**, but Klarman appears to be balancing quality with valuation - paying low prices even if the company isn't perfect by Buffett's measures. ## **Discounted Cash Flow Analysis - Intrinsic Value under Three Scenarios** We performed a **Discounted Cash Flow (DCF)** valuation for each of the above stocks to estimate intrinsic value in three scenarios: **Conservative**, **Nominal (base case)**, and **Optimistic**. For each scenario, we used **free cash flow (FCF)** growth rates based on the company's historical FCF trends (minimum, average, and maximum growth in the past decade). We project these growth rates over 10 years, then use a **terminal growth rate of 2%** (approx. long-term inflation) thereafter. We apply a **10% discount rate** (reflecting a desired annual return) to compute the present value of cash flows. The resulting **intrinsic value per share** is then compared to the current market price, and a **"buy price" (25% margin of safety)** is given as 75% of the intrinsic value. Key assumptions and step-by-step calculations for each company are detailed below: - **Fiserv (FI):** TTM free cash flow (2024) is about **$5.06 B** . Fiserv's FCF growth has ranged from \~5% (lowest positive, e.g. 2017-18 saw \~-0.3% slight decline) to \~15% (long-term average) to as high as \~34% (2024 growth) . - *Conservative case:* **5% FCF growth**, reflecting Fiserv's slowest growth years (it had a couple of flat years around mid-2010s). We grow FCF at 5% for 10 years, then 2% terminally. The present value of 10-year cash flows plus terminal value gives an **intrinsic value ≈ $148 per share**. The stock recently trades around $130, so it's slightly below this intrinsic value. A 25% margin of safety would require a **buy price ≲ $111**. - *Nominal case:* **15% growth** (approx. Fiserv's historical average FCF CAGR, boosted by acquisitions). This yields a much higher **intrinsic value \~ $307 per share**. Such growth might be achievable if synergies and fintech trends drive strong earnings. With a 25% MOS, the **buy target would be \~$230**. (Current price is far below $307, implying significant upside if Fiserv can sustain 15% growth.) - *Optimistic case:* **34% growth**, using Fiserv's best year (2024 saw +34% FCF jump) . Sustaining this for a decade is unlikely, but as a theoretical upper bound: intrinsic value comes out astronomically high, **\~$1,184 per share**. This suggests extreme upside if Fiserv consistently compounded at fintech-like rates. A 25% MOS buy price would be **<$888**, which is not relevant - Fiserv will almost certainly not grow 34% annually long-term. (This scenario highlights how sensitive DCF valuations are to growth; such high growth is not expected by the market.) > **Interpretation:** At \~$130, Fiserv is above the conservative-value range but well below the nominal-case value. This implies the market is pricing in modest growth (single digits). Klarman likely expects Fiserv to at least hit somewhere between the conservative and base scenarios. If Fiserv grows closer to the nominal case, it's undervalued; if growth stalls in mid-single digits, it's roughly fairly priced. - **Alphabet (GOOG):** We use TTM free cash flow ≈ **$72.76 B** . Alphabet's FCF growth has varied from **\~0%** (it actually had an -8% dip in 2022 ) to **\~20% average** to **\~50-60%** in banner years (e.g. 2021 FCF +55% ). - *Conservative case:* **0% growth** (assume FCF stays flat at the current level - effectively factoring in slower growth or higher capex costs). With no growth for 10 years and 2% beyond, intrinsic value comes to about **$65 per share**. This is far *below* the current market price (\~$200). A 25% MOS buy price would be **<$49**. This scenario is very conservative given Alphabet's past growth - it implies the current $200 stock price is only justified by expecting significant growth (which is true; no-growth would make it overvalued). - *Nominal case:* **20% growth** (a bit lower than its \~23% EPS CAGR, acknowledging a maturing business). This gives an **intrinsic value ≈ $276 per share**. With 25% margin, **buy below \~$207**. Interestingly, \~$207 is around the current trading price, suggesting the market expects \~20% FCF growth going forward. If Alphabet indeed grows FCF \~20% annually (through cloud, YouTube, etc.), its intrinsic value is slightly above the current price - not a huge bargain, but reasonable. - *Optimistic case:* **50% growth** (matching its best years like 2021; this is likely too high to sustain long-term). Ten years of 50% compounding yields a staggering **\~$2,131 per share intrinsic value**. A 25% MOS buy price would be **<$1,598**. Clearly, this scenario is unrealistic over a full decade - it shows that if one assumed blue-sky growth, Alphabet's value would be enormous. In practice, growth will slow long before 10 years. > **Interpretation:** Alphabet's current price (\~$200) is **well above the flat/no-growth value** - justifying its valuation requires substantial growth. Our DCF indicates it's roughly fairly valued if it can maintain \~20% growth. Klarman increased GOOG likely because he sees durable growth (maybe not 20% forever, but strong enough). The **margin of safety is thin here** - Alphabet is a high-quality compounder rather than a cigar-butt bargain. A value investor might want it closer to \~$150 (to have 25%+ upside assuming \~20% growth). But given Alphabet's competitive moat, Klarman seems comfortable paying up for its future cash flows. - **Dollar General (DG):** We use a baseline FCF \~**$1.64 B** (TTM) . DG's FCF growth history: it was strongly positive for years (\~10-15% typical), but recent troubles have made growth **\~0% or negative** (FCF down in 2022-23). On the high end, DG had years of \~20%+ FCF/EPS growth during expansion. - *Conservative case:* **0% growth** (assume current depressed FCF stays flat - essentially assuming no improvement from the present struggles). Intrinsic value comes to **\~$82 per share**. With a 25% MOS, **buy at <$61**. Notably, DG's current price \~$115 is much higher, indicating the market expects a rebound. If DG truly stagnated at current FCF, the stock would be significantly overvalued. - *Nominal case:* **10% growth** (a reasonable long-term rate if DG can resume store expansion and margin recovery - its 10-year EPS CAGR was \~16%, but we temper it). This yields an **intrinsic value ≈ $168 per share**. Margin of safety buy price \~**$126**. In this scenario, DG is slightly undervalued at $115 (about 10% below $126). This aligns with a view that after a rough year, DG can get back on a growth track (though maybe slower than before). - *Optimistic case:* **20% growth** (close to DG's historical peak performance in its heyday of rapid expansion). This gives **\~$348 intrinsic value** per share, and a MOS buy price of **<$261**. Under this scenario, the stock at $115 is an absolute bargain (trading at \~0.44× intrinsic value). However, 20% annually for 10 more years (doubling every \~3.5 years) may be unrealistic now that DG is a large, mature retailer - especially given recent margin pressures. > **Interpretation:** These DCF results underscore that **Dollar General's valuation hinges on a turnaround**. If it can even achieve low-double-digit growth again (nominal case), the stock appears undervalued (intrinsic \~$168 vs $115 market). If growth stagnates (conservative case), it's overvalued. Klarman's increased stake suggests he believes the nominal (or better) scenario will play out - e.g. that DG's earnings will recover (through price increases, cost control, continued new store openings in underserved areas). Our **buy target around $126 (for 10% growth)** is just above current levels, implying DG is near an attractive entry for long-term investors if one expects a rebound. For a true Buffett-style margin of safety, one might wait for \~$60-80 (which corresponds to essentially pricing in zero growth), but that would require extreme pessimism. Klarman seems to be betting that the market has oversold DG on short-term bad news, offering a *value* entry now around $115. - **Elevance Health (ELV):** We approximate FCF with net earnings: **\~$6.0 B** (since insurer FCF is tricky with reserves, we use $6 B as sustainable owner earnings). Historically, ELV's FCF/Earnings growth has been **low-to-mid single digits** (EPS grew \~4-8% annually typically), with occasional higher jumps from acquisitions or enrollment gains (perhaps \~10-12% max in best years). Worst case, growth could be \~0% (if medical cost inflation squeezes profits). - *Conservative case:* **0% growth** in FCF (flat earnings). Intrinsic value ≈ **$316 per share**. 25% MOS buy price \~**$237**. ELV's current price is around $440, far above $316 - meaning if it couldn't grow at all, it's significantly overvalued. Clearly, investors expect ongoing growth in premiums and profit. - *Nominal case:* **5% growth** (in line with its recent earnings growth trend of mid-single digits). This yields intrinsic value ≈ **$452 per share**, with a buy target ≈ **$339**. Interestingly, $452 is close to ELV's current market price ($440), suggesting the market is pricing in roughly mid-single-digit growth (which is logical for a large insurer). At 5% growth, the stock is fairly valued; for a margin of safety you'd want it under $340. Notably, Klarman was buying in Q2 when ELV traded around $420-460, which is near our fair value - he may view 5% as a *baseline* and expect possibly higher growth or other value (like share buybacks) to materialize. - *Optimistic case:* **10% growth** (which would be high for a giant insurer - perhaps achievable if membership and premiums rise faster or margins improve). This scenario gives intrinsic value \~**$650 per share**, and a MOS entry <**$488**. If one believed Elevance could sustain 10% earnings growth, the current \~$440 would be undervalued (about 2/3 of intrinsic value). Historically, Anthem/ELV has rarely grown profit at 10% for long without acquisitions, so this is a bullish scenario. > **Interpretation:** Our DCF suggests **Elevance is roughly fairly priced** for modest growth (\~5%). It's not a bargain unless one is confident in higher growth or wants a stable business at a reasonable price (which might be Klarman's rationale). The **conservative no-growth value ($316) is well below the market price**, indicating little margin of safety by classic standards. However, the business is stable and cash-generative; Buffett might accept a smaller MOS for a steady, recession-resistant insurer. The **buy zone for a 25% MOS is around $340 or below**, which hasn't really happened recently. Klarman's buy implies he found it acceptable value (perhaps viewing the risk of negative surprises as low, given the managed-care industry's resilience). In sum, Elevance's DCF analysis shows it's **not deeply undervalued but offers a decent return if it meets moderate growth expectations** - more a Buffett-style "great company at a fair price" scenario. - **CRH Plc (CRH):** We use TTM free cash flow **\~$2.07 B** . CRH's growth is cyclical: worst-case it could see **0% or negative** FCF growth during downturns (in 2020 FCF fell slightly). Average long-term growth might be **\~5%**(considering infrastructure demand and acquisitions). In boom periods, FCF can jump by **15%+** (e.g. with U.S. stimulus, etc.). - *Conservative case:* **0% growth** (flat FCF, assuming no volume growth and stable margins). Intrinsic value ≈ **$30.3 per share**. With 25% MOS, **buy < $22.7**. CRH's U.S. listing recently traded around $53 (after moving its primary listing to the U.S.), so clearly the market expects growth - $30 intrinsic at 0% growth is far below the market price. - *Nominal case:* **5% growth** (reasonable for a company that expands with GDP and reinvests earnings). Intrinsic ≈ **$43.4 per share**, buy target **< $32.5**. Even at 5% growth, the current \~$53 is above our intrinsic estimate - suggesting the stock might be overpriced unless one assumes more optimistic growth or lower discount (note: some might use a lower discount rate for a stable developed-market company, which would raise intrinsic value). However, Klarman likely believes that *current earnings understate true mid-cycle earnings* - meaning effective growth (from current depressed base) will be higher. - *Optimistic case:* **15% growth** (assuming a strong cycle of infrastructure spending and successful expansion into new markets). Intrinsic value ≈ **$89.8 per share**, buy price **< $67.4**. In this scenario, at \~$53 CRH is undervalued (trading at \~59% of intrinsic value). A 15% FCF growth for 10 years implies a robust construction boom and/or major efficiency gains - somewhat bullish, but not impossible if CRH capitalizes on a global infrastructure renaissance (note: CRH is positioning as a key player in aggregates for green energy, U.S. highway bills, etc.). > **Interpretation:** **CRH's DCF valuation is highly sensitive to the assumed growth** because of its cyclical nature. The stock looks expensive under a no-growth or low-growth scenario (meaning if economic conditions stagnate, CRH would be overvalued). But if one expects a strong cycle (optimistic case), CRH could be meaningfully undervalued. Klarman's significant add suggests he sees catalysts (perhaps U.S. infrastructure legislation, reshoring construction, etc.) that could drive higher-than-normal growth in the coming years. Essentially, **Klarman may be underwriting a higher growth/earnings rebound scenario** for CRH, whereas a pure Buffett approach (demanding obvious value under very conservative assumptions) might shy away from such a cyclical stock. A Buffett purist might wait for a much lower price (e.g. \~$30 or below) to buy CRH, to bake in a margin of safety even with zero growth. Klarman, however, seems comfortable with a smaller MOS, likely due to CRH's strong market position and the macro tailwinds he anticipates. - **Amcor (AMCR):** We use FCF ≈ **$0.829 B** (FY2024) . Amcor's growth is low: worst-case **0% or slight decline**(packaging is mature; Amcor had flat-to-down EPS some years). Average maybe **\~3-5%** (they target a few percent organic plus small M&A). Best case perhaps **\~10%** (if they have a surge from cost cuts or a major acquisition integration - historically rare). - *Conservative case:* **0% growth** (flat FCF). Intrinsic ≈ **$4.00 per share**. 25% MOS buy < **$3.00**. Amcor's current price is \~$9.90, way above $4 - clearly, without growth the DCF doesn't justify the stock. This reflects the reality that investors buy Amcor for its dividend and stability, not for high intrinsic value via DCF - a no-growth DCF undervalues steady businesses that can return cash (Buffett might use a slightly lower discount for a bond-like stable company, but we stick to 10%). - *Nominal case:* **5% growth** (upper end of Amcor's likely range, considering inflation pass-through and occasional productivity gains). Intrinsic ≈ **$5.73 per share**, buy < **$4.30**. Even with 5% growth, our DCF suggests the stock is worth around $5.73, which is about 42% below the market price. This indicates the market is pricing Amcor more on its dividend yield (\~5%) and perhaps assuming lower discount (some investors might accept \~6-8% return for a defensive stock). At a 10% required return, Amcor looks overvalued unless growth accelerates. - *Optimistic case:* **10% growth** (quite optimistic given Amcor's history - would likely require sizable acquisitions or a major demand increase for packaging). Intrinsic ≈ **$8.24 per share**, buy < **$6.18**. In this best scenario, the stock's intrinsic value ($8.24) is still slightly below the current \~$9.9. So only with substantial growth (which is not very likely for Amcor) does it approach being fairly valued. > **Interpretation:** By a strict DCF, **Amcor appears overvalued at \~$10**. The market is effectively valuing it like a bond substitute - investors accept a lower return (its 5% dividend plus low growth) in exchange for stability. Our use of a 10% discount makes it look undervalued only at much lower prices. For a Buffett-style margin of safety, one would want it near $4-6 (which corresponded to the pandemic lows). Klarman's purchase around $9 suggests he may be content with a lower return or sees specific improvements ahead (perhaps cost synergies or portfolio moves that could boost FCF beyond recent trends). Alternatively, he might view the **5% dividend yield as a "return of capital" while waiting for any upside** - a different calculus than Buffett's growth-driven DCF. Essentially, **Amcor does not pass a Buffett DCF hurdle unless one is content with bond-like returns**. It's more of a stable income play; the margin of safety in DCF terms is absent at current valuations. - **PagSeguro (PAGS):** For DCF, using current free cash flow is tricky because *reported free cash flow has been negative* (due to aggressive growth in its lending/working capital). Instead, we might use an "owner earnings" approach - e.g. normalize based on net income. 2024 net income was \~$525 M, so we'll use **$0.5 B as a proxy FCF** (assuming the negative cash flow is temporary and long-term FCF will align with earnings as growth stabilizes). Growth-wise, PAGS saw explosive growth early on, then a plateau. Minimum growth could be **0% or negative** (if competition erodes its business or economic conditions worsen). Average might be **\~15%** (if it can resume growth by expanding its financial services). Maximum could be **\~30%** (if Brazil's fintech adoption accelerates and PAGS gains market share - it had years with >30% revenue growth historically). - *Conservative case:* **0% growth** (assuming PAGS's earnings do not grow from current levels - a cautious outlook given recent headwinds). Intrinsic ≈ **$16.36 per share**. 25% MOS buy < **$12.27**. The stock is about $8.70 now, which is **well below $16.36**, indicating a significant margin of safety if PagSeguro can merely *maintain* its current earnings. This reflects the market's pessimism (investors fear earnings might actually fall or that cash flow issues persist). At zero growth, PAGS appears undervalued - intrinsic \~$16 vs price \~$9. - *Nominal case:* **15% growth** (a middle scenario where PagSeguro finds a second wind - perhaps expanding its credit offerings profitably or monetizing its user base, achieving moderate growth). Intrinsic ≈ **$48.46 per share**, buy < **$36.35**. This suggests *huge upside* - if PAGS can grow at a fintech-like 15% for a decade, the stock could be a multi-bagger (intrinsic \~$48). The current price $8-9 is only \~18% of this intrinsic value. Of course, 15% sustained growth is uncertain; it assumes successful execution and market expansion. - *Optimistic case:* **30% growth** (closer to its early-stage growth rate; supposing PagSeguro becomes a dominant digital bank in Brazil with rapid adoption). Intrinsic ≈ **$141.74 per share** (!), buy < **$106.30**. This is likely *too extreme*, but shows the theoretical high end. If PAGS resumed hyper-growth, the undervaluation is enormous. The stock would be trading at <10% of intrinsic value. However, this scenario may be unrealistic for 10 straight years - fintech competition and market saturation would likely curb growth before then. > **Interpretation:** The DCF analysis for PagSeguro reveals **why Klarman might be interested despite its risks** - even under very conservative assumptions (no growth), the stock appears undervalued (intrinsic \~$16 vs $9). The market's negativity (partly due to recent cash flow issues and Brazil risk) means PAGS trades at a P/E <7 . If PagSeguro even modestly grows (let alone returns to double-digit growth), the upside is substantial. This is a classic **deep value asymmetry**: high potential reward if things go right, limited downside if earnings stay stable. Buffett might be cautious here due to the unpredictable nature of fintech and currency risk, but from a pure numbers standpoint, **PAGS offers a large margin of safety** in DCF terms. Our conservative buy price \~$12 is above the current price, implying it's already below a no-growth intrinsic value - effectively the market is pricing in decline. Klarman is likely betting that PagSeguro's earnings will at least hold steady or grow, making the current price an attractive entry. It's worth noting that free cash flow is negative right now (a red flag to Buffett), but if we assume that's a temporary growth artifact, PAGS's valuation is very compelling. **Summary of DCF Results:** The table below compiles the above findings for quick comparison (all values approximate): | **Company** | **Growth Scenario** | **Intrinsic Value (≈/share)** | **25% MOS Buy Price** | **Market Price (Q3 2025)** | **Assessment** | |-------------------|---------------------|-------------------------------|-----------------------|----------------------------|--------------------------------------------------------------------| | *Fiserv* | Conservative (5%) | \~$148 | \~$111 | \~$130 | Slightly over MOS; needs growth ≥5%. | | | Nominal (15%) | \~$307 | \~$230 | | Undervalued if \~15% growth achievable. | | | Optimistic (34%) | \~$1184 | \~$888 | | Not realistic to sustain in long term. | | *Alphabet* | Conservative (0%) | \~$65 | \~$49 | \~$202 | Significantly overvalued if no growth. | | | Nominal (20%) | \~$276 | \~$207 | | \~Fair value (market pricing \~20% growth). | | | Optimistic (50%) | \~$2131 | \~$1598 | | Unrealistic; highlights upside if exceptional growth. | | *Dollar General* | Conservative (0%) | \~$82 | \~$62 | \~$115 | Price assumes some rebound; no-growth would overvalue it. | | | Nominal (10%) | \~$168 | \~$126 | | Undervalued if it can recover to \~10% growth. | | | Optimistic (20%) | \~$348 | \~$261 | | Considerable upside if returns to historic growth. | | *Elevance Health* | Conservative (0%) | \~$316 | \~$237 | \~$440 | Needs growth; no-growth scenario doesn't support price. | | | Nominal (5%) | \~$452 | \~$339 | | Fairly valued (\~5% growth priced in). | | | Optimistic (10%) | \~$650 | \~$488 | | Upside if it can accelerate growth (uncommon historically). | | *CRH plc* | Conservative (0%) | \~$30 | \~$23 | \~$53 | Implies overvaluation if no growth/cycle stagnation. | | | Nominal (5%) | \~$43 | \~$32 | | Still below current price - market betting on more. | | | Optimistic (15%) | \~$90 | \~$67 | | Potentially undervalued if strong cycle materializes. | | *Amcor* | Conservative (0%) | \~$4.00 | \~$3.00 | \~$9.90 | Overvalued by DCF; market treating it as bond (lower req. return). | | | Nominal (5%) | \~$5.73 | \~$4.30 | | "Fair" value at \~6% discount rate perhaps, but not at 10%. | | | Optimistic (10%) | \~$8.24 | \~$6.18 | | Still slightly below market price. | | *PagSeguro* | Conservative (0%) | \~$16.36 | \~$12.27 | \~$8.70 | Deep value - priced for decline; no-growth DCF > price. | | | Nominal (15%) | \~$48.46 | \~$36.35 | | Highly undervalued if moderate growth returns. | | | Optimistic (30%) | \~$141.74 | \~$106.30 | | Enormous upside if it reverts to high growth (riskier scenario). | **Important**: These DCF estimates are based on simplifying assumptions. For instance, we assumed a **10-year explicit growth** at the stated rate and a **perpetual 2% growth thereafter**, with **10% discount rate** for all companies. Real-world valuations would refine these (e.g. using different discount rates for different risk levels, or multi-stage growth). Nonetheless, this exercise illustrates the range of outcomes. - Stocks like **Fiserv** and **Elevance** show **intrinsic values in the ballpark of current prices under reasonable growth assumptions** - they are not "fire-sale" cheap, but they offer solid returns if growth holds up (Klarman likely views them as high-quality companies purchased at fair-to-good prices, consistent with a Buffett-ish approach). - **Alphabet** similarly is roughly fairly valued for its growth; it wasn't a bargain, but Klarman added for its quality (the DCF suggests you're paying for future growth, which he presumably believes is very secure). - **Dollar General** and **PagSeguro** stand out as **undervalued in DCF terms if their issues are temporary** - DCF shows huge upside if they revert even to moderate growth. This aligns with a classic value investor strategy: buy beaten-down cyclicals/turnarounds when pessimism is high. Buffett criteria might frown at DG's recent margin collapse or PAGS's negative cash flow, but the DCF indicates why Klarman sees a **margin of safety in price**. - **CRH** is an interesting case: Buffett might avoid it due to cyclicality, but **Klarman is betting on an upswing** (the optimistic DCF shows upside). Without growth, it wouldn't justify its price - so this is a case of value investing with a macro or cycle view. - **Amcor** appears overvalued under a strict DCF - it's more of a bond-like investment (Buffett generally avoids such low-growth, low-MOS situations). Klarman's purchase here may be for income or a different thesis (perhaps expecting cost synergies or using it as a cash-parking vehicle with yield). In conclusion, **Klarman's portfolio changes reflect a mix of Buffett-style and deep value tactics**. The DCF analyses show that for several holdings (Fiserv, Alphabet, Elevance), the investment rationale rests on **steady growth at a reasonable price** - not a huge immediate discount, but decent long-term value. For others (Dollar General, PagSeguro, CRH), **the price embeds very low expectations**, creating significant upside if things go even moderately well - this is where the **margin of safety lies in pessimistic pricing**. A pure Buffett approach might avoid some of these due to quality concerns, but Klarman appears willing to **buy good-but-not-perfect businesses at very cheap prices** (or fair prices for great businesses). Each investment's success will hinge on whether the implied growth or recovery in our DCF scenarios actually materializes. The margin of safety, as quantified above, gives Klarman room such that even if only the conservative/base cases occur, downside is protected, while the optimistic cases would yield outsized gains.