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David Tepper’s Appaloosa Management is one of the best-performing hedge funds over the last couple decades.
However, the famed investor was dumping some of the big-name tech companies during the third quarter, while making bets on autos and airlines.
More interesting, perhaps, is the fact that Tepper was reducing his exposure to the equity markets last quarter. His fund reduced its stake in 17 of its 40 positions and sold completely out of seven.
Recall what Tepper said in September: He’s getting less bullish on the market and is taking a cautious outlook. Of note, he implied that company valuations were high, while earnings growth was starting to slow. He even said that it was time to take money off the table.
He appears to be doing just that and holding a lot of cash right now. Nonetheless, he still managed to find parts of the market to be bullish about.
Top Holding
General Motors (NYSE: GM) remains Appaloosa Management’s top holding, despite the fact that the fund reduced its stake by 15%.
I covered GM earlier this year when Tepper got uber bullish. He was part of a shareholder group that pushed GM to implement a large share buyback plan.
Since then shares are down 5%. However, they are still offering a hefty 4% dividend yield. Since the financial crisis, GM has been focused on cutting costs and streamlining its automobile lineup. For example, GM’s hourly labor cost is just $5 billion, a third of what it was in 2005.
Auto sales are also still strong in the U.S., where GM has a leadership position. During October, auto sales were up 13.6% year-over-year. This was the best October since 2002, and the industry is on pace to have its best year ever.
Notable Bullishness for Tepper
Two places that Tepper was putting money to work during the third quarter were airlines and autos, putting two stocks in these sectors into his top five.
Appaloosa Management added 42% to its Delta Air Lines (NYSE: DAL) stake, making the airline stock the fund’s third largest holding. Delta has been one of the bright spots among major airlines and beat earnings expectations in the third quarter.
Setting Delta apart, Tepper’s possible thesis is that this airline has been focused on expanding internationally via partnerships. This is a long-term growth opportunity that will benefit the company even if fuel prices don’t stay low forever.
Plus, Delta also recently announced a solid $6 billion share buyback plan – good enough to reduce shares outstanding by 16%.
NXP Semiconductors (NASDAQ: NXPI) was another stock Tepper was buying. Appaloosa added 37% to its stake, making the chip company its fourth-largest holding. This is another bet on auto stocks, although with a twist – the company is a major player in the connected car and mobile payments businesses.
However, NXP shares are down 13% over the last month after offering weak fourth-quarter guidance, mainly from interim inventory problems related to its distribution channel. This should just be a near-term headwind.
Souring on Tech
Tepper’s major disposal was dumping all of his Alibaba Group (NASDAQ: BABA) shares. Appaloosa was selling Alibaba as shares went from $80 to below $60 a share during the third quarter.
Alibaba’s stock has since recovered, but is the company out of the woods? It has a stronghold on the Chinese e-commerce market, but expansion overseas is proving tough. Competitor JD.com (NASDAQ: JD) is also expanding very quickly in China.
Tepper also cut Appaloosa’s Apple (NASDAQ: AAPL) position in half. This comes just as Apple’s growth might finally be slowing. Apple’s forecast for the quarter ending in December has growth coming in below what many people expected. Many companies are selling competitive devices – i.e., smartphones, tablets and computers – at ultra-low prices to eat into Apple’s market share.
Overall, Tepper has said of the current market that he’s “not loving it.” But he appears to be taking solace in the 4% GM dividend yield and using market sell-offs to make targeted bets on the airline and chip sectors.
Tesla, Apple and Google Are Creating This
When people think of Tesla, what immediately comes to mind is the world’s first electric car. It’s an astounding achievement. But what few people realize is that Tesla’s next technological wonder could easily put it to shame. Morgan Stanley says this breakthrough could save the American economy $1.3 trillion each year. And Tesla’s not the only one racing to get it out the door. Apple and Google are working on their own versions too.