The following is a list of top seven sells by David Tepper’s Appaloosa Management according to its latest 13F filing with SEC.
Stock | Symbol | Shares Held - 06/30/2011 | Shares Held - 09/30/2011 | Change in shares |
Pfizer Inc. | 14,495,002 | 0 | -14,495,002 | |
Citigroup Inc. | 7,201,841 | 2,519,761 | -4,682,080 | |
Mosaic Co. | 2,390,027 | 737,000 | -1,653,027 | |
Macy's Inc. | 6,312,625 | 3,286,543 | -3,026,082 | |
Apple Inc. | 200,000 | 38,119 | -161,881 | |
Microsoft Corporation | 3,943,911 | 1,711,926 | -2,231,985 | |
International Paper Co. | 5,097,067 | 3,316,483 | -1,780,584 |
Clearly, David Tepper’s move to exit Pfizer completely was not a good one. Pfizer is up over 20% since Sept. 30 significantly outperforming S&P 500 (SPY). I believe Pfizer is still a long candidate despite of the significant run up we have already seen. I am bullish on Pfizer because of management’s commitment to enhance shareholder value through dividend and buybacks, and company’s improving product pipeline. Pfizer increased its quarterly dividend by 10% to $0.22 from $0.20 in Q4 and authorized an additional $10 billion share repurchase program with $5 billion in repo expected for 2012. Pfizer is likely to generate ~$20B in free cash flow in 2012, so even with the dividend of ~$6.5B and share buyback of $5B there is still plenty of room for inorganic growth through M&A. In addition, Pfizer entering an interesting new product launch cycle with four $1+ bn opportunities including Xalkori, Eliquis, tofacitinib, and Prevnar 13 adult which could provide organic growth catalysts for the company.
I also don’t agree with David Tepper on Apple and Microsoft and believe they are good long candidates. Microsoft is trading at a forward P/E of 8.5x. I believe Microsoft is a good medium-term investment in these uncertain times. Its cash cushion limits the downside as well as enables it to make opportunistic acquisitions if the valuations of target companies reach attractive levels. In addition, Microsoft is also taking a lot of new initiatives, which can drive meaningful growth over the next few years. Some of the major catalysts for the stocks are the Windows 8 launch, Office 365 gaining traction and a successful adoption of Nokia-WP7 phones. I think Microsoft offers an attractive risk/reward for investors who can hold the stock for one year.
Apple also looks good, trading at just 10x forward earnings despite ~$80 billion in cash and expected 29% growth in sales in the current year. Given the initial momentum iPhone 4S has seen, I believe Apple can post good December quarter earnings. Apple continues to remain a secular growth and market-share-gain story in the smartphone and tablet space. I would recommend buying the company's shares given its low valuations and several upcoming catalysts over the next few quarters; such as strong iPhone 4S sell-through, holiday sales, and anticipated iPad 3 and iPhone 5 launches next year.
One stock in the above list where I see further downside is Mosaic Co. I am concerned about a potential drop in potash volumes in the near term as Indian buyers try to reset potash contract prices because of weak local currency. Indian Rupee has declined ~20% vs. USD since August making imports to India costlier. So far major global potash producers have not agreed to the demand. This deadlock is likely to continue and it will lead to potential delays in contract renewals with China and India causing lower volumes. In addition, additional phosphate capacity in Saudi Arabia and Indian contract renegotiations are also likely to affect DAP prices negatively.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
