Following Seth Klarman: SLM Corp (SLM) Looks Cheap Enough To Buy
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Today we want to take a look at SLM Corp (NYSE: SLM) (Sallie Mae), a stock Baupost Group, a hedge fund run by deep value investor Seth Klarman, just raised their stake in from 1,415,000 shares at the quarter ended Sept. 30, 2007 to 21,911,966 shares at the quarter ended Dec. 31, 2007. An increase of nearly 20.5 million shares.
Baupost Group is now the fourth largest holder of SLM with a position worth $482 million. Baupost Group, run by Seth Klarman, is a $7+ billion investment group that has returned approximately 20% annually since inception. SLM is now the firm's largest holding.
What started out as a great year for the leading student loan provider, 2007 turned out to be a nightmare for SLM as the credit crisis unfolded. After agreeing to be acquired for $60 per share by private equity group J.C. Flowers and others in April, a termination of the merger sunk the stock to around $20.
I like this trade from Baupost Group. While headline risks could continue to pressure the stock short term, it may be a great play over the next 12-24 months. Here are my reasons:
1. SLM is tightening lending standards, which will lower loan volume but increase the quality of the loans.
2. The market is climbing the 'Wall of Worry' in the financial sector as more bad news is released. The sector will start forming a bottom and stocks will start to climb on bad news.
3. SLM could still be an attractive buyout target to JC Flowers or others.
4. Eventually the credit markets will return to normal, bringing down costs for the company.
5. The company is cutting costs.
To keep up-to-date with news on the Baupost Group click here
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Comments
SLM and any other student loan provider
Anyone who buys into the student loan space is nuts. While the short term credit crunch is a huge obstacle for this industry, that haven't even begun to see the governmental issues arise over last years legislative actions. No lender in this country can keep their heads above water with the margins so tight. Eliminating the SAP will kill this industry. Unless the legislative bodies step back in and correct what they screwed up, I see all student lenders in a downward spiral for at least another 12-24 months.
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SLM
Tom on Feb 27, 2008 02:14 PMKlarman is a stud. I bet he'll be right.