BOSTON (TheStreet) -- Seth Klarman, founder of Boston-based hedge fund Baupost Group, is followed closely because his investment philosophy is irreverent and his long-term performance is outstanding. The press-wary guru, who manages more than $20 billion, disclosed first-quarter holdings over the weekend. Klarman is a value investor.

Klarman's investment manual,

Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

, only in publication briefly, now fetches thousands of dollars in the secondary market as his value investing insight is considered second-to-none.

Baupost held just 16 stocks as of March 31. It sold out of its position in

Regeneron Pharmaceuticals

(REGN) - Get Report

, which has appreciated 62% in 2011 and 125% in 12 months, with, presumably, a hefty profit. Baupost decreased its position in four stocks:

Enzon Pharmaceuticals






Breitburn Energy



Ituran Location

(ITRN) - Get Report

. It amplified its stakes in

PDL BioPharma

(PDLI) - Get Report


AVEO Pharma

(AVEO) - Get Report


View Seth Klarman's Portfolio

Klarman, who worked for famed investor Michael Price before founding Baupost in 1982, found two stocks in the bargain bin during the quarter, which he considers to be solid value investments:

Allied Nevada Gold



Sycamore Networks



His position in Allied Nevada, was substantial, worth $87 million and accounting for 4.9% of the portfolio. His stake in Sycamore, on the other hand, is modest, at $2.4 million, or just 0.1% of the portfolio. Still, Klarman vets all investment ideas thoroughly before purchasing, so it's possible he's still building a stake in Sycamore. His bet on Allied Nevada likely got off to a rocky start as its stock is down 15% in the past month, in part due to a commodities sell-off. Here's a look at these picks.


Allied Nevada


is a domestic gold producer. It owns the Nevada-based Hycroft Mine and has other exploration interests throughout the state.

Allied's stock has advanced 78% in the past year, an unusual stock for Klarman, who usually favors downtrodden securities. Allied's adjusted first-quarter earnings missed analysts' estimate as the company was break-even, falling short of a forecast for a nickel of per-share profit. Sales, up 36% to $32 million, also missed consensus, by 11%. Allied Nevada shares dropped 4.8% in reaction to the report.

Allied Nevada has a market capitalization of just $2.9 billion, ranking as a small-cap, and isn't covered by any Wall Street analysts, however, the quantitative model used by

TheStreet Ratings

ranks it "buy." Allied has grown net income and earnings per share 72% and 53%, annually, on average, over the past three years as its stock delivered an annualized gain of 89%. The quarterly disappointment, however, has a silver

or gold lining. An $11 million exploration investment accounted for the break-even quarter as provable Hycroft reserves more than doubled.

Thus, the quarterly miss may augur better results going forward as precious metals prices remain elevated, despite a recent correction. Klarman is unlikely to abandon this position, given his renowned patience.


Sycamore Networks


is a communications-equipment company that specializes in bandwidth-management services for fixed-line and mobile-network operators.

Sycamore's stock has rebounded 22% in the past 12 months, although it is down 12%, annualized, over a three-year span. Klarman, attracted to value, has peer metrics to back up his thesis. Sycamore shares sell for a book-value multiple of 1.4, a 55% peer discount. Sycamore's adjusted fiscal second-quarter loss widened to 12 cents, from a loss of four cents in the year-earlier quarter, as sales fell 25%.

Sycamore's sales have decreased by 28%, annually, on average, over the past three years. For the fiscal second-quarter, its gross margin was lofty, at 66%, but its operating margin, at negative 32%, remained disappointing. On a positive note, Sycamore has $433 million of cash on hand and no debt, so it has plenty of capital to keep operations afloat and mount a turnaround. Its recent product,


, for mobile broadband optimization, is attracting interest from many network operators as they try to cope with bandwidth strains at times of peak usage.

In addition to Klarman,

Credit Suisse

is optimistic about this product's potential. It has an "outperform" rating on Sycamore and a $28 target on the stock, suggesting a 25% return over the next 12 months.

-- Written by Jake Lynch in Boston.


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