Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today, let's look at Appaloosa Management, founded by investing giant David Tepper, and known for investing in the debt of companies in distress. Tepper's investing history includes debt and stock in companies such as Enron and Worldcom. He made billions on bank stocks in 2009, after they had imploded and before they recovered. More recently, he invested in many housing-related companies.
Why should you look at Appaloosa Management's moves? Well, according to the folks at GuruFocus.com, Appaloosa gained a whopping 1,335% in the first decade of this century, compared with just 16% for the S&P 500.
The company's reportable stock portfolio totaled $4.0 billion in value as of September 30, 2012.
So what does Appaloosa's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are American International Group (NYSE:AIG) and JPMorgan Chase (NYSE:JPM). Other new holdings of interest include Sealed Air (NYSE:SEE). Sealed Air, specializing in food safety and packaging, among other things, posted disappointing earnings earlier in the year, and had some questioning its acquisition of Diversey Holdings. Not long after that, though, it announced the sale of Diversey Japan, along with 2% year-over-year organic revenue growth. Revenue has been growing, but free cash flow has been shrinking.
Among holdings in which Appaloosa increased its stake were Chimera Investment (NYSE:CIM) and Marvell Technology (NASDAQ:MRVL). Mortgage REIT Chimera, which has drawn much interest with its dividend yield recently above 13%, has made money by taking on more risk than many of its brethren. But my colleague John Maxfield sees some signs of financial distress, so interested investors might want to approach it with caution. Some concerns, for example, include questionable accounting, as well as questionable management.
Marvell Technology, meanwhile, has been hurt by sluggish sales of PCs. Bulls would like to see it profit more from the spread of smartphones. Its presence in Microsoft's (NASDAQ:MSFT) Surface tablets is promising, but it remains to be seen how successful the Surface will be. There's opportunity in China, but competition there, too.
Appaloosa reduced its stake in lots of companies, including Valero Energy (NYSE:VLO), a major refiner. The stock hit a 52-week high not so long ago, and it stands to profit from lower crude oil prices (because they mean lower input prices for refiners and, thus, higher profit margins). The company's fans like its solid fundamentals and growth prospects, but bears worry about possible fallout if fracking activities are reined in by regulations.
Finally, Appaloosa closed out its position in Nuance Communications (NASDAQ:NUAN), which has made a lot of money supplying its speech-recognition software to Apple (NASDAQ:AAPL) and other electronic device makers. Bulls are hopeful about its new business applications, such as ones for the medical field, as well as its promising voice biometric technology that can identify customers without passwords or questioning. Nuance recently reported record sales of its Dragon Medical offerings. Its move into the auto industry has been a success, too, with its technology now in some 70 million vehicles. There's competition, though, such as from Amazon.com (NASDAQ:AMZN), which bought a rival voice-recognition specialist, Yap.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. Therefore,13-F forms can be great places to find intriguing candidates for our portfolios.