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, in a July letter to shareholders, Tepper noted that had one invested $1 million in his hedge fund in 1993, it would have grown to $149 million over the past 20 years. Investing in the S&P 500 instead would have left you with $5.3 million. Tepper's performance reflects an average annual net gain of 28%. Wow.
The company's reportable stock portfolio totaled $6.9 billion in value as of June 30.
So what does Appaloosa Management's latest quarterly 13F filing tell us? Here are a few interesting details.
The biggest new holdings are the PowerShares QQQ Trust and SPDR Dow Jones Industrial Average ETFs. Other new holdings of interest include Chicago Bridge & Iron (NYSE:CBI) and Trinity Industries (NYSE:TRN). Chicago Bridge & Iron offers construction and engineering services to the energy and natural resources sectors, working on projects related to the water, hydrocarbon, and nuclear industries. Its second quarter featured revenue up 119% and net income up 64%. The company lowered its expected new orders for 2013 a bit, in part because of governmental delays, but its backlog remains substantial, topping $24 billion. The company bought Shaw Group last year, a company known for constructing nuclear-related buildings. Chicago Bridge & Iron's stock is up 64% over the past year and has averaged annual growth of 23% over the past 15 years.
Trinity provides products and services for the industrial, energy, transportation, and construction sectors -- making gobs of rail cars, for example. It has a new joint venture, too, designed to facilitate the leasing of $1 billion worth of rail cars. In May, the company raised its dividend payout by 18%, and it now yields 1.3%. The company represents a way to profit from the shale oil boom, as areas without pipelines are seeing rail cars used to transport oil. Its second quarter featured earnings up 26% over year-ago levels, revenue up 7%, and a backlog of orders topping $5 billion. With a forward P/E recently below 8, the stock looks attractive.
Among holdings in which Appaloosa increased its stake were Foster Wheeler and Fluor. It reduced its stake in companies such as Chimera Investment (NYSE:CIM) and Weatherford International (NYSE:WFT). Mortgage REIT Chimera Investment recently yielded 12.2%, but its payout has been shrinking and may continue to do so. Chimera may become less attractive if interest rates rise, or if Congress cancels favorable tax treatment for REITs. It has taken on more risk than many of its brethren and has had some trouble filing reports on time. Some have questioned its hefty management fees. For its second quarter, management noted a modest bump in book value.
Oil and gas equipment and services specialist Weatherford has faced some accounting-related problems in the recent past but has been moving beyond that and seeing its stock rise, too. Its second quarter featured shrinking losses and a relatively rosy outlook for the rest of the year. Revenue rose 3% over year-ago levels. Management plans to focus more on the company's core operations and more profitable businesses. Some think the company might end up acquired.
Finally, Appaloosa Management's biggest closed positions included Two Harbors Investment (NYSE:TWO) and MFA Financial. Two Harbors is another mortgage REIT with more flexibility than some of its peers because it's a "hybrid" mREIT, investing in both government agency-backed mortgages and ones that are not so backed. The stock recently yielded a huge 13.4%. (Keep in mind that its payouts don't get the lower tax rates of other dividends.) As with other mREITs, rising interest rates and prepayments on loans are a worry, but Two Harbors has protected itself by hedging against some of that. It has also been diversifying its operations, for example buying a mortgage servicing company.
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, and 13F forms can be great places to find intriguing candidates for our portfolios.