David Tepper's Appaloosa Sells Transocean, Bets Big on Halliburton: Should you Follow?

Every quarter, large money-managers have to disclose what they've bought and sold via "13F" filings. While Fools don't always (or even usually) follow what the big money does, we can often glean an idea or two by tracing their footsteps. 

David Tepper made more than $3 billion in 2013. Source: Appaloosa.

Over the past decade, few hedge funds can come close to matching what David Tepper has done at Appaloosa Management: Tepper managed to avoid most of the catastrophic downturn in 2008 and 2009 and has averaged 40% annualized returns since then. He has also managed to more than double his own net worth in the past few years; he's now estimated to be worth more than $10 billion after netting more than $3 billion in 2013. 

In the previous quarter's 13F, it was revealed that Appaloosa Management sold off a large part of its holding in offshore driller Transocean  (NYSE: RIG  ) and started a position in oil services giant Halliburton  (NYSE: HAL  ) . Well, the latest 13F is out, and it looks like Tepper's transition from Transocean to Halliburton is complete.

Bear in mind that trying to duplicate the moves of someone like Tepper is a fool's (with a lowercase "F") errand. The transactions on a 13F can be four months old when the filing is submitted, and it's possible that they don't reflect the fund's current holdings. But perhaps you can learn to get more Tepper-like returns by better understanding a larger trend that may have motivated Tepper's move.

Softness in offshore demand already affecting Transocean stock
Tepper's decision to sell out of Transocean and invest heavily in Halliburton looks to be at least partly driven by expectations that oil and gas producers will be investing more heavily in land-based exploration and production over the next several years, while demand for offshore drillers softens. Transocean is the largest offshore driller in the world, and it also owns a relatively old fleet of drill ships, semi-submersibles, and jack-up rigs that can't operate in the areas where many offshore oil and gas reserves are being found now. While there will still be strong demand for ships that can operate in deeper water and drill deeper underground, a large part of Transocean's fleet is old and can't operate in these areas. This could lead to even more short-term impact on Transocean's bottom line and stock price. 

Since last November, Transocean stock is down some 25%, and during the first quarter (the period that Appaloosa sold its stake) the stock fell 15%, while shares of Halliburton gained 17%:

RIG Chart

RIG data by YCharts.

But looking at Transocean outside of what David Tepper is doing for Appaloosa's portfolio, you have a company that has largely recovered from the Macondo well disaster in the Gulf of Mexico, pays a solid dividend that's yielding almost 5% at recent share prices, and plays a substantial role in offshore oil and gas production globally. With that said, Transocean will definitely be challenged by a number of competitors with newer, more capable fleets in coming years, and it may not be the best investment in offshore drilling right now. 

Halliburton well-positioned in three key areas
Halliburton has three focuses for its business: deepwater, unconventionals (onshore shale production), and mature fields. Halliburton is one of the top players in onshore oil-field services, so the shift of spending onshore will be good for the company's bottom line. 

But what makes Halliburton a really interesting play right now is the company's expertise in unconventional shale production and its technical know-how in deepwater oil and gas development. Halliburton has expertise in just about every area of deepwater production, including well drilling and completion, analysis of core and fluids, software for seismic analysis -- you name it. And when it comes to deepwater, Halliburton claims it can help its customers do it better. 

Simply put, this diversity of exposure offers a nice mix of opportunity for Halliburton, no matter where big oil invests. 

Final thoughts: Looking at the long term
Demand for cheap energy won't let up anytime soon, with the global middle class expected to grow by 1 billion people over the next couple of decades. Even as renewables become a bigger part of the mix, oil and gas aren't going away anytime soon, and oilfield services companies like Transocean and Halliburton will be right in the middle of this activity.

Do they make sense for your portfolio? Tepper's actions, much like this article, shouldn't be the basis of your decision, but understanding where oil and gas company investment in production will happen -- largely onshore and in deepwater offshore -- for the next couple of years can help you make a more informed choice. And that could mean that neither of these companies is best for your portfolio. 

This game-changer is more important than Halliburton
Warren Buffett has been as successful as David Tepper -- but for the past three decades. He's so confident in this one energy equipment and services company's can't-live-without-it business model, he  loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click here to uncover the name of this industry-leading stock, and join Buffett in his quest for a veritable landslide of profits!


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2965807, ~/Articles/ArticleHandler.aspx, 9/3/2015 9:04:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Jason Hall

Born and raised in the Deep South of Georgia, Jason now calls Southern California home. A Fool since 2006, he began contributing to in 2012. Trying to invest better? Like learning about companies with great (or really bad) stories? Jason can usually be found there, cutting through the noise and trying to get to the heart of the story.

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,351.38 293.03 0.00%
S&P 500 1,948.86 35.01 0.00%
NASD 4,749.98 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:02 PM
HAL $38.17 Down +0.00 +0.00%
Halliburton CAPS Rating: *****
RIG $13.44 Down +0.00 +0.00%
Transocean CAPS Rating: ***