Following is a brief snapshot of stock market performance of top quarterly buys (as per 13F filing) of David Tepper's Appaloosa Management:
Top New Buys
Stock | Symbol | Shares Bought Last Quarter | 31 March closing price | June 20 closing price | % Return |
Metlife Inc | 1,500,000 | 44.73 | 40.53 | -9.39% | |
Apple Inc | 200,000 | 348.51 | 315.32 | -9.52% | |
Valero Energy Corp | 2,564,890 | 29.82 | 24.24 | -18.71% | |
CVR Energy Inc | 1,556,374 | 23.16 | 22.57 | -2.55% | |
KB Home | 1,388,900 | 12.44 | 11.66 | -6.27% | |
Frontier Oil Corp | 611,055 | 29.32 | 31.07 | 5.97% | |
Pultegroup Inc | 1,637,112 | 7.4 | 7.29 | -1.49% | |
DR Horton Inc | 1,119,740 | 11.65 | 11.23 | -3.61% | |
Marathon Oil Corporation | 250,000 | 49.6 | 51.1 | 3.02% | |
Tesoro Corporation | 400,000 | 26.83 | 21.01 | -21.69% |
Top Position Increases
Stock | Symbol | Shares Bought Last Quarter | 31 March closing price | June 20 closing price | % Return |
Goodyear Tire & Rubber Co | 5,169,939 | 14.98 | 14.92 | -0.40% | |
US Airways Group Inc | 9,545,724 | 8.71 | 8.6 | -1.26% | |
Macy's Inc | 1,488,602 | 24.26 | 27.65 | 13.97% | |
CF Industries Holdings, Inc | 282,493 | 136.79 | 138.57 | 1.30% | |
United Continental Holdings | 1,886,203 | 22.99 | 24.29 | 5.65% | |
Delta Airlines Inc | 2,035,872 | 9.8 | 9.69 | -1.12% | |
Hewlett-Packard Company | 487,582 | 40.97 | 34.99 | -14.60% | |
Dean Foods Co | 2,352,712 | 10 | 12.54 | 25.40% | |
Mueller Water Products Inc | 6,867,623 | 4.48 | 3.7 | -17.41% | |
Navistar International Corp | 229,809 | 69.33 | 52.41 | -24.41% |
S&P 500 has declined 3.52% from 31 March to 20 June, while Appaloosa's top 10 new buys witnessed an average decline of 6.42%. Appaloosa's top position increases fared much better decline only 1.29% on an average. If we consider weighted average returns, top new buys declined 9.52% while top position increases gained 0.06%.
Here is a brief analysis of five relatively better performing stocks from Appaloosa's top buy:
Dean Foods is the nation's leading dairy processor with around $12 billion of Sales. DF has two operating segments: Fresh Dairy Direct and White Wave-Morning Star. The Fresh Dairy Direct segment consists mainly of the company's conventional fluid milk, ice cream and creamer operations. The White-Wave business includes brands like Silk Soymilk and Horizon Organic while the Morningstar business consists of primarily of private label extended shelf life products.
My Recommendation: Neutral
Main concerns are continuing softness in conventional milk volumes in the near term, wholesale private label pricing is not improving, retailers not passing on the benefits of higher private label milk pricing with processors such as DF and lastly input costs are rising (both raw milk and other).
Macy's is the largest U.S. department store by the revenue. Regional department stores have undergone heavy consolidation over the years, and the present day Macy's organization is a result of a 2005 merger between Federated Department Stores and the May Company. The company also operates the luxury chain Bloomingdale's.
My Recommendation: Buy
Key value drivers of Macy's growth have been the My Macy's localization intitiative, organizational restructuring and strong online sales. In addition, its strength in exclusive labels, omni-channel integration aimed at improving inventory turnover and gross margin, and focus on Magic Selling training are expected to give an added impetus to Macy's growth. Consensus EPS estimates for current year is $2.52 and next year is $2.85. Macy's also has strong free cash flow and buyback potential. Morgan Stanley estimated its FCF at $1.2 bn in 2011 and expects Macy's to repurchase $1.4 bn shares in 2011/12.
CF Industries is the largest producer of nitrogen based fertilizers in North America and the second largest nitrogen producer in the world. It reported 2010 pro forma revenues of $3.97 billion & gross profit of $ 1.18 billion. The company is organized into two operating segments: Nitrogen and Phosphate, generating 80% of its 2010 revenues from the Nitrogen segment.
My Recommendation: Buy
CF Industries looks attractive on account of both the company valuations, cash projections, strong crop prices as well as positive agricultural fundamentals for the year ahead. CF Industries enjoys a significant cost advantage over its off shore global competitors. Its cost is almost 46% lower than its global competitors that include regions such as Europe and China, giving it a significant margin advantage. In addition, the Chinese government is proposing an export tax on export of nitrogen fertilizers from its country, in order to reduce exports and cater to rising domestic demand. This proposed action would further strengthen the position of CF Industries by reducing its competition further. CF Industries has also achieved synergies from its acquisition of TRA, in excess of $ 135 million projection, and has also paid down its load of $ 1.2 billion less than a year after taking it out to fund the acquisition.
Marathon Oil is an integrated oil and gas company based in Houstan, Texas. The upstream segment has core operations in North America, UK, Norway, West Africa and exploration potential in Asia. The downstream segment, that is to be spun off in June 2011, has refineries in US.
My Recommendation: Buy
Expected upside from MRO's international assets in Angola, Gulf of Mexico and synthetic crude oil from Canda's oil sands, refinery expansions and a higher refining mix compared to other integrated oil companies puts MRO in a favourable position in today's environment. In addition, with the spin off of MRO's downstream business, Marathon Petroleum Corporation (MPS) effective June 30th, MRO will create two independently publicly traded energy companies. This is expected to release value from the share as well as provide management with greater flexibility for tailoring solutions for the two businesses which have little integration between them as of now.
Though MRO's recent Eagle Ford shale acquisition from Hilcorp has been termed as expensive by some analysts, it is expected to enhance the portfolio as well as reserve capacities of MRO significantly. The acquisition is expected to be in a self funding mode from 2014 onwards.
Frontier Oil Corp is a petroleum refining and marketing company based out of Houstan, Texas. The company owns and operates two refineries with 187 mbd combined capacity and relatively high capacity for processing heavy sour crude.
My Recommendation: Buy
FTO's earnings, like that of its peers, has benefitted from higher refining margins, rising crude oil prices and increased throughput and product sales volumes. Its stocks have gained 59% YTD vs. a 34% average gain for peers. FTO's proposed merger with Hollycorp remains on schedule for the 3rd Q2011 close, with the deal expected to create synergies between the two similar niche peers with access to land locked crudes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
