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TheStreet Open House

5 Stocks Seth Klarman Loves

Genworth Financial

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Genworth Financial (GNW) is another name that Klarman and company like right now. Baupost picked up 15 million shares of the mid-cap insurance firm, taking on just over 3% of Genworth's outstanding shares with an $84.9 million position in the stock. Genworth provides mortgage insurance, life insurance, and more nuanced products like long-term care insurance.

The firm was a unit of General Electric (GE) until 2004, when it was spun-off from the blue chip and sent on its own way. Since initially going public, GNW has seen its shares tumble 72%. (It was one of the 10 Worst-Performing S&P 500 Stocks in the Second Quarter.)

A lot of that poor performance has come from exposure to the worst parts of the market. As a major mortgage insurer, a wave of mortgage defaults meant big payouts and the need to raise capital through dilutive equity offerings and increased debt leverage. While the firm has stabilized itself at this point, GNW isn't out of the woods just yet. Another economic hiccup could spark the need for more capital.

>>5 Financial Stocks Hedge Funds Love

In spite of those challenges, Genworth is at least starting to look cheap right now. While the firm's valuation is in line with peers, GNW was known for being one of the more conservative mortgage underwriters going into the crisis, and increased exposure to international mortgage insurance (rather than housing here at home) makes it an even better risk. And even though the firm had to raise capital after the recession, the debt load is more than tenable right now, especially given the mountains of cash that Genworth threw off in the most recent year.

I'd suggest that risk-averse investors steer clear of this stock -- there are a lot of unknowns that still need to get worked out here. But investors looking for a little more excitement could do worse than following Seth Klarman's lead.

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