David Tepper and his Appaloosa Management hedge fund have produced amazing long-term results for their investors over the long haul, and Tepper has developed a solid reputation for honing in on distressed companies and taking advantage of opportunities to profit from turnaround efforts. Even though Appaloosa's investing style makes it imperative not to rely too much on its filings to learn about its overall holdings, the fact that Tepper has keyed in on shares of General Motors (NYSE:GM), HCA Holdings (NYSE:HCA), and Delta Air Lines (NYSE:DAL) makes those three companies worth a closer look.
Revving up its engines
Tepper's reputation gets him a seat at the bargaining table with even the largest companies, and automaker General Motors is just one of the companies that have taken action to appease the wishes of the hedge-fund investor. Earlier this year, Tepper joined with other hedge-fund investors to try to get peer Harry Wilson a seat on the board of directors at GM. Wilson had a hand in the restructuring of the automaker following the financial crisis, and many thought he would be able to produce shareholder-friendly changes that would have boosted the value of General Motors stock. In the end, General Motors agreed to buy back $5 billion in shares by the end of next year in exchange for Wilson dropping his bid to join the board, and the stock has performed well.
General Motors remains Appaloosa's biggest position, making up more than 13% of total assets. But Tepper sold off some of his GM position in the third quarter, cutting the size of the position by two percentage points. With the stock having seen substantial increases, Tepper might be looking to redeploy capital in more promising areas.
Appaloosa's second-largest position is in hospital company HCA Holdings, making up nearly 10% of the total portfolio. Tepper also used this stock as a source of funds during the third quarter, with a 630,000 share reduction in the amount of stock it owns. Yet HCA nevertheless grew as a share of total reportable assets as Appaloosa's total holdings declined in value.
Tepper has said that he believes that HCA has gotten hit too hard in the recent market correction. With demographics favoring the need for more healthcare services, many investors think that hospital stocks are in a prime position to thrive in the years to come. Yet recent concerns about whether the Affordable Care Act's insurance exchanges will remain profitable enough for insurance companies to keep providing policies to participants have pushed HCA shares to their lowest levels since late last year. If the recent favorable trend toward fewer uninsured patients reverses itself, then HCA could get saddled with greater losses that could hurt its bottom line.
Tepper had been a fan of airline stocks lately. Appaloosa first got involved with Delta Air Lines in late 2009, and although he hasn't remained in the stock for that entire time, he nevertheless has benefited from the huge rebound in the airline industry. With dramatic gains from baggage fees and other ancillary costs, Delta has become highly profitable and carried shares substantially higher.
Appaloosa added to its position in Delta Air Lines during the third quarter, buying 1.8 million shares to bring its total stake to about 6.08 million shares. Making up about 9.5% of Appaloosa's total portfolio, Delta doesn't seem like an obvious candidate for activist-investor moves given its long-term success. Some have pointed to the airline's ownership of a refinery operation as weighing against the benefits of lower fuel prices, putting Delta at a competitive disadvantage. Nevertheless, given how well Delta has taken advantage of consolidation in the industry, hedge-fund investors will likely focus more on the profits they've generated from the position over the long haul.
Tepper's latest moves show that he's been willing to put his money where his mouth is, pulling back after saying in September that it might be a good time to reduce exposure to the stock market. Yet Appaloosa's continuing interest in General Motors, Delta Air Lines, and HCA Holdings makes them interesting candidates for individual investors to follow on their own.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.