Seth Klarman’s Baupost Group dumped all 419,765 shares of Jacobs Solutions (NYSE:J) in 2024’s final quarter. The billionaire’s hedge fund turned around and dumped much more into another construction-related stock, Ferguson Enterprises (NYSE:FERG). 

Baupost made 19 moves in the fourth quarter out of 22 stocks and invested $3.43 billion in assets. Broken down by activity, there were four new purchases, including Ferguson, additional purchases to six stocks, sold out of six stocks, including Jacobs, and reduced its position in six others. 

Interestingly, the top 10 holdings, which accounted for 80.2% of the hedge fund’s portfolio, all involved some change in the quarter. The biggest was Ferguson, which jumped into the sixth spot after Baupost purchased 1.13 million shares of its stock. 

Klarman’s firm traded a decent position in Jacobs stock for a more significant stake in Ferguson. 

Here’s why. 

Key Points About This Article:

• Billionaire Seth Klarman’s Baupost Group made 19 moves in the final quarter of 2024. 
• Two of the most significant moves involved the purchase and sale of construction stocks Ferguson Enterprises (NYSE:FERG) and Jacobs Solutions (NYSE:J).
• Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks” now.

Jacobs Solutions Remains a Question Mark

William Blair analyst Louis DiPalma recently reiterated his Hold rating on the stock, suggesting the construction infrastructure company’s growth ambitions might not be obtainable. 

On Feb. 18, Jacobs announced a multi-year growth strategy at its 2025 Investor Day presentation. The company said that its plan, Challenge Accepted, will accelerate its push to be a more focused business generating profitable growth in the infrastructure, water, life sciences, and advanced manufacturing solutions end markets.

Between 2025 and 2029, the company is projecting adjusted net revenue growth of 7% at the midpoint of its guidance. In Q4 2024, its revenues grew by 4.4%; in 2024, they were up 6.0% year-over-year, suggesting that it could be a stretch to consistently meet its annual growth target.  

That’s especially true considering the company’s average annual revenue growth over the past five fiscal years (September year-end) is -3.3%, according to S&P Global Market Intelligence. If you take out the top and bottom years for growth, it gets a little better, up 5.5%, but still short of its new goals.

It’s Doing Well in 2025

The good news for Jacobs shareholders is that the company is delivering on its objectives early in fiscal 2025. 

“After a strong first quarter of 2025, the company reiterated its fiscal 2025 outlook for adjusted net revenue to grow mid-to-high single digits over fiscal 2024, adjusted EBITDA margin to range from 13.8-14.0% and reported free cash flow (FCF) conversion to exceed 100% of net income. Today, the company reaffirms that guidance,” stated its Feb. 18 press release about its new growth strategy.

So, Baupost might have decided there were better opportunities elsewhere in the construction arena despite reporting healthy revenue and earnings growth in fiscal 2024. 

However, two things could have prompted it to divest its stock completely. 

First, its earnings per share in fiscal 2024 were $5.28. It expects that increase by 14% in 2025 to $6.00 at the midpoint of its guidance. Its shares trade at 24.6x its latest 12 months EPS and 21.7x its 2025 EPS. Historically, it traded between 15-18x its forward EPS, so valuation could have been a concern. 

Secondly, Jacobs represented only 1.31% of its portfolio at the end of September. It wasn’t the hedge fund’s best idea. Further, according to WhaleWisdom.com, it first bought J stock in Q3 2023, paying an average price per share of $107.26. In mid-November, its share price hit an all-time high of $150.54, a perfect time to take profits. 

Baupost was opportunistic.

Baupost Jumped Into Ferguson in a Big Way

As stated in the introduction, The hedge fund purchased 1.13 million shares of the distributor of plumbing, heating, ventilation and air conditioning products, as well as many other things. It is the largest of its kind in America. 

In one quarter, Ferguson went from no position to the hedge fund’s sixth-largest position, currently valued at $203 million, up nearly 4% since the end of December, accounting for 5.72% of its portfolio. 

What did Baupost see in Ferguson that it didn’t in Jacobs?

2024 was a transitional year for the company. in August, Ferguson Enterprises Inc. became the new parent company of its various subsidiaries, including UK-domiciled Ferguson plc, making the U.S. its permanent head office. As a result, Ferguson plc shares were delisted from the London Stock Exchange. 

It didn’t come as a surprise to most investors since Ferguson generated almost all of its revenue in the U.S. In Q1 2025, ended Oct. 31, 2024, all but $403 million of its $7.77 billion was U.S. revenue. The company’s British origins long in the rearview mirror.

Its business so far in 2025 has been mediocre. Revenues were up 0.8%, while its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was down 7.4%, to $758 million. 

The good news is that it finished the quarter with net debt of just 1.2x its adjusted EBITDA, well within its target of 1-2x target net leverage range. That should enable it to make strategic acquisitions virtually at will in the months ahead. 

Here’s Where the Rubber Meets the Road

Although its sales are barely growing in a challenging economic environment, it is taking market share from competitors while still generating positive free cash flow. 

For example, it has a 23% market share in the $29 billion waterworks industry, giving it the number one position. It is either in first, second, or third position in all nine of its North American end markets. 

Ferguson can bide its time until its headwinds subside, enabling it to accelerate growth organically and through acquisitions while sending more to the bottom line. 

That’s likely part of the Baupost investment thesis. It’s well respected among analysts. Of the 22 that cover its stock, 16 (73%) rate it a Buy, with a target price of $225, 26% higher than its current share price. 

Josh Brown, CEO of Ritholtz Wealth Management, appeared on CNBC to discuss Ferguson’s business. Brown mentioned that its shares hadn’t gotten enough love because, until the August change where it’s domiciled, it couldn’t be a part of the S&P 500 despite generating almost all of its sales in the U.S.

Once Ferguson is added to the index, as Brown argued, it should happen sooner rather than later, and it will be discovered by a whole new cohort of portfolio managers.

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