Appaloosa Management, L.P. is a Short Hills, N.J.-based hedge fund management firm founded by David A. Tepper. The firm manages over $4 billion in equities and has beaten the S&P 500 consistently by a large margin.
Investment Strategy: David Tepper is a contrarian investor. His boldest move was to snap up investment bank stocks in 2009 while they were at the very bottom. His bet proved correct, and his portfolio returned a stunning 132.72%, beating the S&P 500 by over 106 percentage points.
The following are some of Appaloosa management's big purchases from the last quarter (source: 13F filing).
Oracle Corporation (ORCL): Appaloosa purchased 1,218,526 shares of Oracle Corporation last quarter. Oracle Corporation is an enterprise software company which develops, manufactures, markets, distributes and services database and middleware software, applications software and hardware systems, consisting primarily of computer server and storage products. It operates in three segments: Software, hardware systems and services. Oracle's EPS forecast for the current year is 2.34 and next year is 2.56. According to the consensus estimates, its top line is expected to grow 4.40% in the current year and 6.60% next year.
On its analyst day last year, Oracle management mentioned its medium-term target of 20% EPS growth rate. This is way above 9-11% current consensus estimates. Clearly, if Oracle is able to execute and post ~20% growth, it will surprise the market positively and result in a significant upside in the stock. Oracle also laid out the formula for sustaining 20% EPS growth, which appears reasonable. The key points include:
Growing distribution 15-20% with an increased focus on SAAS and verticals.
Leveraging the technology portfolio into bigger deals and market share gains.
Driving new opportunities around Exa, Fusion and other emerging products.
Expanding operating margins above 50%.
In addition to the good growth prospects, Oracle's strong cash position makes it a good defensive play in current uncertain times and I believe the stock offers a favorable risk reward.
Boston Scientific Corporation (BSX): Appaloosa purchased 7,797,503 shares of Boston Scientific last quarter. Boston Scientific develops, manufactures and markets medical appliances and equipment that are used in interventional cardiology, peripheral interventions, vascular surgery, electrophysiology, neurovascular intervention, oncology, endoscopy, urology, gynecology and neuromodulation. It generates almost 50% revenues from Cardiac Rhythm Management devices and Drug-Eluting Stents.
Earlier this month, Boston Scientific reported weak 4Q 2011 results with sales significantly below consensus estimates and management's guidance. This sales performance is attributed to disappointing CRM and DES sales shortfalls in all regions due to market slowdown and pricing pressures. Further, Boston Scientific lost market share in the ICD (Implantable Cardioverter-Defribillators) market in the U.S.
Boston Scientific revenue guidance for 1Q 2012 was also weak. Sales growth range is expected to be -4% to 1%, indicating further CRM market contraction and pricing headwinds. Though pricing trends are improving across a few segments, ICD and DES pricing is expected to be a negative for Boston Scientific in the near term. While management's initiatives for improving the cost structure in 2012 is positive, I believe the company has to show improved top line in order to reignite investor interest in the company. Until then, I would recommend avoiding the stock.
Delphi Automotive Plc (DLPH): Appaloosa purchased 229,236 shares of Delphi last quarter. Delphi stock has seen an amazing run year to date, gaining over 45%. The company reported excellent Q4 results with EPS of $0.84, well above consensus expectation of $0.55. The single biggest driver of the performance was improved gross margins, particularly in the Powertrain segment. Going forward, the company has excellent exposure to key secular trends like fuel efficiency, safety, in-vehicle technology and emerging markets. I would recommend buying the stock as these trends will continue to drive above-average growth and strong free cash flow for the company.
In addition to the above three stocks, David Tepper also purchased 2,150,000 shares of the Financial Select Sector SPDR (XLF). It is interesting to note that David Tepper is placing a bullish bet on financial sector, particular given his successful bet on investment banks in 2009.