Value Investor Klarman Bets $43M on Energy Distributor DNOW

Baupost Group disclosed a $43 million stake in DNOW Inc. in its latest 13F filing. Seth Klarman's firm bought shares of the distributor of energy and industrial products for the oil and gas industry. DNOW was spun off from National Oilwell Varco in 2014.

The company supplies valves and pumps to oil and gas operators. Its revenue tends to track U.S. rig counts and capital spending in the energy sector.

Klarman's Baupost is known for buying during down cycles and holding for long periods. The timing of the DNOW position comes after U.S. natural gas prices stayed low and crude traded in a range.

Rewey Asset Management also disclosed a stake in DNOW earlier this year, betting on a recovery in industrial activity. That fund's thesis centers on the same mechanism: as E&P companies maintain or increase spending, distributors like DNOW see margins expand from operating leverage. You can read more about that play here.

For commodity markets, DNOW's revenue is tied to drilling activity. When rig counts rise, distributors sell more equipment and crude production tends to follow. A sustained increase in DNOW's revenue would signal more active drilling and completions. That would mean higher crude oil demand.

The risk is that drilling does not pick up. A recession or prolonged low energy prices would push DNOW's revenue lower.

DNOW's quarterly earnings report is the next data point. Management's guidance on revenue and margins will show whether the cycle is turning. The 13F filing covers holdings through the end of the last quarter. Baupost still holds the position, according to follow-up filings.

For the company's recent price action and financials, see the DNOW stock page.