Like many of the investing greats, Seth Klarman takes a value approach, in which he tries to find stocks and other assets trading below their intrinsic value and buy them at a discount. Klarman is a firm believer in the lessons taught by Benjamin Graham, who is widely considered the father of value investing.

Klarman's fund, the Baupost Group, has done quite well, generating annual returns of 20% over the last three decades, according to institutional-investor intelligence service Hedge Fund Alpha. Forbes estimates that Klarman has a net worth of $1.3 billion.

The Baupost Group manages roughly $28 billion in assets across many different public and private asset classes, but its public equities portfolio consists of 21 stocks worth about $3.5 billion. Three of these stocks made up close to 43% of the portfolio at the end of the third quarter.

Liberty Global: 30.3% of the portfolio

Multinational telecom company Liberty Global (LBTYK -0.77%) (LBTYA -0.88%) has several share classes. The Baupost Group owned Liberty Class A and C shares at the end of the third quarter; 26% of the fund is invested in Class C shares, while another 4.3% is invested in Class A shares. The shares are up 31% to 32% this year, ahead of the broader market.

Liberty is a complex story that many investors have consistently viewed as a value play. Through mergers and acquisitions, the company now owns a whole slate of telecom infrastructure companies including Telenet, Virgin Media, UPC Slovakia, Virgin Media O2, and Vodafone Ziggo.

And Liberty Global invests in over 75 other content, tech, and infrastructure companies such as Lionsgate, Univision, and Formula E Holdings.

Management has taken several steps to create shareholder value such as selling divisions, spinning off its Swiss communications arm Sunrise in early November, buying back shares, and reinvesting into new businesses. The company also had $3.5 billion in cash at the end of the third quarter of 2024.

Using a sum-of-the-parts valuation, management in February of this year said it thinks the stock is worth $48 per share, implying significant upside from where it trades at $12.40 (as of Dec. 20). The stock has tremendous potential.

However, these sum-of-the-parts stories usually take time for the market to appreciate, so make sure to do your homework before investing since it's a complex story.

Alphabet: 7% of the portfolio

Klarman also sees potential in Alphabet (GOOG -1.55%), the parent company of Google. Baupost has invested 7% of its capital in the company. Shares have performed well this year, and the stock is up over 38%. The performance is even better considering the Department of Justice (DOJ) sued Alphabet over antitrust concerns about Google.

The DOJ first announced its lawsuit in early 2023, alleging that Google monopolized digital ad technology through acquisitions, using its power to drum up more business, and making it difficult for publishers to use other digital advertising competitors, which effectively gave Google extreme pricing power.

Most of the time, you figure a big tech company like Alphabet will pay some multibillion-dollar fine and be done with it. However, this lawsuit seems more serious. In August, a federal judge sided with the DOJ and ruled that Google did effectively break antitrust laws.

In perhaps a more surprising move, the DOJ asked the federal judge to punish Alphabet by having the company sell its Chrome browser. The company plans to appeal the court ruling and is likely to fight any attempts to make the conglomerate sell its Chrome browser. However, any discussion of a breakup is a big deal and could materially impact the company.

Still, Alphabet has underperformed many of its fellow "Magnificent Seven" stocks this year. Many analysts believe that fears over the lawsuit or other competing technology are overblown and that this is the time to buy Alphabet.

President-elect Donald Trump's incoming administration is likely to deregulate, especially compared to President Joe Biden's administration, which would be bullish for Alphabet when it comes to the lawsuit. There are still risks, but I expect Alphabet to be a major tech and search engine player for the foreseeable future.

Dollar General: 5.5% of the portfolio

Klarman and Baupost took a new position in Dollar General (DG 0.34%) and didn't waste any time making it a significant holding. Dollar General offers shoppers a discount on a range of goods, and now Klarman thinks the stock is on sale. Shares are down 46% this year, as a struggling lower-income customer base has crushed the stock.

In the third quarter, it reported earnings that were down nearly 30% year over year, due to "an environment where our core customer is financially constrained." The company did manage to grow same-store sales year over year.

Dollar General is also continuing to execute its real estate strategy for next year, which involves opening roughly 575 new stores in the U.S. and up to 15 in Mexico, remodeling over 4,000 other stores, and relocating about 45.

There is a lot of uncertainty with a stock like this right now because lower-income customers tend to be more sensitive to changes in the economy, and it's still unclear what will happen to the economy in 2025.

Inflation could revert higher, bringing back higher consumer prices. The economy could also suddenly tip into a recession if unemployment shoots higher -- or it may stay strong, and lower-income customers will recover. It's tough to make a call right now, but Klarman likely has a positive view, and Dollar General currently trades at 12 times forward earnings.