Adam Levy, The Motley Fool

Sat, Jun 21, 2025, 12:55 AM6 min read

• Seth Klarman is a staunch proponent of value investing, but he remains flexible in that approach.

• The Magnificent Seven stocks are expensive as a group, with most of them trading at a P/E above 30.

• This stock has been held down by multiple challenges, but the price is too attractive to pass up.

• 10 stocks we like better than Alphabet ›

Seth Klarman is a well-respected value investor with a global following. And there's good reason for that. His Baupost Group hedge fund returned an average of 20% per year over the first 30 years of its existence. That performance comes despite value stocks falling well out of favor over the last decade.

But Klarman and his team emphasize that they "remain flexible in their application" of value investing. That means investing in stocks that are mispriced relative to their value, even if they won't show up on any stock screeners for deep value based on traditional metrics. As a result, this method can end up with some stocks that many investors would consider growth stocks, such as those found in the Magnificent Seven.

But Klarman only sees one member of the vaunted group of trillion-dollar stocks as worth his and his investors' money, and he just added more of it to Baupost's portfolio.

The Magnificent Seven is a group of stocks full of interesting opportunities for the right investor. And anyone who invested in any or all of them is probably happy with their returns over the last couple of years. But a few may not present the value necessary for an investment from someone like Klarman. As a group, they're relatively expensive based on traditional valuation standards.

Four of the seven sport forward P/E ratios above 30, including Tesla (NASDAQ: TSLA) with its 168 times multiple. While Tesla could prove worth the price with its plans for a robotaxi service and humanoid robots, there's a lot of risk in buying the stock at its current price, especially as its core car business is facing stiff competition abroad. The other high-priced members are growing quickly and on relatively solid footing, but it's hard to argue they're a bargain at their current prices.

But one member of the group trades for a valuation below the S&P 500's average, and that's kind of surprising for a stock with such strong growth potential. The stock has consistently traded at or near the lowest valuation of the Magnificent Seven, giving investors plenty of opportunities. That's why Klarman and his team have built up a position in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), including adding 652,000 more shares in the first quarter, increasing its stake in the company by 46%.