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 $4.6 billion in value as of December 31, 2012.
So what does Appaloosa's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are HCA Holdings and MetLife. Other new holdings of interest include Weatherford International (NYSE:WFT), which is down some 27% over the past year. The company has been plagued with accounting-related problems, as well, and remains challenged by low gas prices and low margins related to an Iraqi contract. In a recent presentation, though, management pointed out that its land-based operations, which represent the bulk of its work, have been growing by an annual average of about 16% over the past decade. Its "unconventional" operations, including shale and oil sands, have been growing even more briskly. Still, despite robust revenue growth and plenty of fans, its bottom line is in the red, and it's free cash flow is, as well, while debt has been growing.
Among holdings in which Appaloosa Management increased its stake was EMC (NYSE:EMC). EMC is a $53 billion storage giant, poised to profit from the rapidly growing cloud-computing and "Big Data" arenas. It also holds an 80% ownership stake in virtualization specialist VMware. EMC has been held back some by softness in technology spending due to a weak global economy, but that won't last forever. Its recent earnings report was solid, with strong operating income growth, and many were excited to hear about the company's plans, with VMware, to launch a joint venture called Pivotal, combining the companies' cloud and data analytics services. Pivotal is likely to be spun off as a separate company in the future.
Appaloosa Management reduced its stake in lots of companies, including Chimera Investment (NYSE:CIM) and Fusion-io (UNKNOWN:FIO.DL). Mortgage REIT Chimera Investment yields 11.6%, profiting by taking on more risk than many of its brethren. My colleague John Maxfield has expressed doubts about the company, and it has not filed required reports on time, either, which is a concern. It did file its 10-K (from 2011) recently, but after the market closed on a Friday, suggesting that it wanted minimal attention. Sure enough, a read through it raises more concerns, such as its hefty management fees.
Fusion-io is an enterprise storage company, focused on technologies such as flash memory and solid-state drives. It already serves some rather major customers, such as Apple, but much of its revenue comes from just a few key clients. It unveiled a new product line earlier this year, and has many investors hopeful, but remember that it does have competitors looming, and it's not inexpensively valued, with a recent forward P/E of 61.
Finally, Appaloosa's biggest closed positions included Marvell Technology (NASDAQ:MRVL) and Lam Research. Marvell's stock seems appealing these days, with the company hurt by softness in the PC market. Its growing interest in the cloud computing arena is promising, though, as is its new processor for low-cost smartphones and tablets. In the meantime, there's a new dividend, recently yielding 2.2%, as well as stock repurchases.
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.