Known for his success with buying distressed assets, David Tepper recently reported holdings for his hedge fund Appaloosa Management. Although these companies aren’t the Sprint-MCI (NYSE:S) and Mirant (NYSE:GEN) that Tepper used to invest in, they’re certainly interesting in their own right. Let’s take a look at some of Tepper’s latest buys:
Google Inc. (NASDAQ:GOOG) – This goliath search engine has taken quite a hit since announcing that it would purchase Motorola Mobility (NYSE:MMI). As explained here, the ideas behind this acquisition are Motorola’s numerous patents as well as the ability to have both a phone’s software and hardware come under the same company. This is of course what competitors Apple (NASDAQ:AAPL) and Research in Motion (RIMM) do, but the question is did Google pay too much for Motorola? We think so. While MMI shareholders certainly caught a break with Google’s bailout, the truth is that Motorola may not even be worth $10 billion. Motorola’s abundance of patents is certainly noteworthy, but that doesn’t mean all of them will be particularly useful. Also in the news has been Google’s social networking site Google+, which is still in beta. This great Seeking Alpha article explains why this is more than just another company trying to make bank off the social networking revolution. We’re not that high on Google+ yet, but then again who’s to say that Google+ won’t replace Facebook the way that Facebook replaced Myspace? Facebook isn’t perfect, and Google may be the one company with enough strength to take them on. As far as value metrics go, GOOG is notable for its high price-to-earnings ratio of 17.71 and high price-to-sales ratio of 4.89, balanced out by a low price/earnings to growth ratio of 0.83.
General Motors Company (NYSE:GM) – GM stock has been hurting the past week, as economic fears have plagued the marketplace. At least one Seeking Alpha writer thinks the company is undervalued though, and we are inclined to agree. Perhaps the most important point made in that article is that GM’s market cap is only a little above $34 billion despite the fact the company is sitting on nearly $33 billion in cash. While GM also has approximately $12 billion in debt, it is still logic-defying that this company isn’t trading for more. Also, despite the fact that GM’s beta is technically incalculable due to the company’s recent reorganization, it’s pretty safe to say that it would be near Ford’s (NYSE:F) 2.36. (Note that these companies move in near lockstep.) With this in mind, GM has simply gotten pulled down so much due to a case of throwing the baby out with the bathwater. This is a quality company that should not be down ~40% over the past 6 months. Note that price to earnings for GM is 4.67, price/earnings to growth is 0.52, and price to sales is 0.25. On the other hand, it is worth mentioning that fallout from GM’s bankruptcy isn’t completely over yet. For example, this article explains how customers are still fighting for repairs related to cars made by the “old GM.”
Marathon Oil Corporation (NYSE:MRO) – MRO has fallen quite a bit lately, and opinions on the stock are quite divided right now. Importantly, the stock recently spun off Marathon Petroleum (NYSE:MPC), so the company’s operations have changed considerably as of late. Most recently, poor earnings have disappointed Wall Street. In fact, Zacks downgraded MRO as a result. That reports cites poor upstream production as one reason for the downgrade. Also, the company is being affected by the fact that it can’t have its usual operations in Libya for the time being. Additionally, the Drohsky play is not doing as well as initially hoped. This article presents an opposing view, however. It explains that while the lack of production in Libya definitely hurts, production elsewhere has been doing well. This takes into account the problems it was having with its Norwegian facility as well. In fact, Marathon’s operations in the Bakken are quite strong. Investors are also excited about Marathon’s acquisition of Hilcorp Resources, which works with Texas’s Eagle Ford shale. Compared with competitors like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), Marathon Oil’s price/earnings to growth ratio of 0.98 is quite attractive. While trailing-twelve-month margins aren’t quite as good, keep in mind this includes when MPC was still part of the company.
Valero Energy Corporation (NYSE:VLO) – Like Marathon Oil, Valero got shellacked on Thursday. This can partly be attributed to a decline in the price for crude oil, which in turn was caused by a diverse set of economic concerns. To make matters worse, Valero is now reporting a malfunction in the refinery in Sunray, Texas. One piece of good news for the company though is that its Memphis refinery is finally being restarted after a recent fire. Compared with competitors like BP, Chevron, and Exxon Mobil offers some interesting value metrics. Valero’s price-to-earnings ratio is significantly higher than these companies but at the same time offers a more attractive price/earnings to growth ratio and significantly more attractive price-to-sales ratio. Margins for Valero are weak though – gross margin is 4.56% and operating margin is 2.51%. Despite this, the company’s cash flows have been impressive. $2.509 billion came in during 2010, and $799 million came in for the first 3 months of 2011. Technicals for VLO look strong now, but some investors may wish to stay away from buying oil companies this time of year due to the possibility of hurricanes. Investors have also been concerned about Valero’s Corpus Christi unit, but the company has said that production there is fine.
Beazer Homes USA, Inc. (NYSE:BZH) – This microcap builder of homes has been hurt tremendously, partly due to the recently reported fall in home sales. At least one writer is speculating that it won’t be long until the company simply ceases to exist. An important point raised in that article is that Beazer’s interest payments are simply killing the company financially. We believe that this poor economy is here to stay, which means BZH stock will probably not see any appreciation. In fact, a further testament to BZH’s poor finances can be found in the cash flows. Operating cash flows have been -$186.71 million for the 6 months ending March 31st. While data for the most recent quarter isn’t currently available, we can’t imagine this improving in the quarter ending June 30th. Perhaps the only attractive statistic for BZH is its price-to- sales ratio of 0.17. This is significantly lower than similar companies like KB Home (NYSE:KBH), Lennar (NYSE:LEN), and PulteGroup (NYSE:PHM) but probably for good reason. BZH’s operating margin over the past 12 months has been -13.71% and quarterly revenue growth year over year is -46.3%. With a beta of 4.89, it is quite clear that this stock could nosedive even more if the market’s losing streak continues.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.