Investment Underground took under the hood at the latest activity by Appaloosa Management. DavidTepper is the founder of Appaloosa Management, a $3+ billion hedge fund operation near New York City. Here is an analysis of the firm's latest sales for this perennial winner.
|Year||Return (%)||S&P500 (%)||Excess Gain (%)|
Becton Dickinson (NYSE:BDX): Tepper sold out of the BDX position. Becton has carved out significant market share in the medical tool market. Becton has a long history of raising its dividend, which stands at 2%. Becton doesn't have the sea of patent protected drugs to shield it from competition and many of its products have been commoditized, creating a narrow moat for the company. Shares are still undervalued in our opinion, and the company could be a target for Johnson & Jonson (NYSE:JNJ). We think this is also a stock that Buffett might like. For our recent article on 14 stocks George Soros loves, including BDX, see here.
Valero (NYSE:VLO): Tepper dumped all remaining shares in Valero. Valero made revenues of $82.23 billion in 2010, which was an increase of 20.68%, after falling 42.79% in 2009. The EBT margins in 2010 and 2009 were 1.82% and -0.66%. The respective ROEs were 1.42% and 8.94%. The 30-day put/call ratio is 0.4. VLO is up 26.6% since December 17, 2010.
Valero is a Fortune 500 company based in San Antonio, and is North America’s largest independent petroleum refiner and marketer. Valero supplies fuel and products that improve people’s lives with 14 refineries and 10 ethanol plants stretching from California to Canada to the Caribbean. This refiner has a solid management team, however shares are already at our fair value estimate.
Sunoco (NYSE:SUN): Tepper also eliminated his stake in Sunoco. Sunoco is a refiner, market and distributor most well-known for its gas stations. The company trades with a forward PE of 16 and the stock yields 1.3%. As oil prices have risen considerably, refiners have had difficulty maintaining the "crack spread" between crude and refined prices. Earnings over the next quarter or two should reflect this difficulty. Nonetheless, we think shares are mildly undervalued relative to our fair value estimate of $48. We use a 10% discount rate for the company.
Covidien (COV): The Covidien stake was completely axed. This producer of all things healthcare is raising its quarterly dividend 11% to $.20 a share. This is the second consecutive year COV has upped its yield, which now stands at 1.5%. Shares have risen considerably in the latest bull run, but we think there is further upside. Shares are worth $58 apiece using a conservative discounted estimate of cash flows.
Wellpoint (WLP): This insurer stake was completely eliminated. This Medicare and senior health mega-insurer sports a PE below 10 on a current and forward year basis. The yield is 1.4%, with plenty of room for growth. The clouds of Obamacare remain, however we think shares are slightly undervalued relative to our fair value estimate of $74 per share on a discounted cash flow basis. We use a 10.5% cost of equity given the heightened uncertainty.
Cigna (NYSE:CI): The stake in Cigna was also zeroed out. This insurer sports PEs in the 8's on a current and forward basis. Cigna is one health insurer that would benefit greatly from interstate competition for health insurance. Shares are trading below fair value, so interested buyers should take a look at current prices. This is a stock in which guru Lee Ainslee maintains an interest, which you can read about here.
Tesoro (TSO): Tepper dumped all remaining shares of Tesoro. Tesoro is a refiner and retail petroleum seller. The company trades on a forward PE basis under 11. The company has a healthy balance sheet relative to its peers and is relatively insulated from rampant inflation in crude prices due to its refiner/seller positioning. We think shares trade right around our fair value estimate, however, and therefore interested investors should wait for a pullback before buying.
Capital One (NYSE:COF): Tepper reduced this position by 21% to 1.7 million shares. Capital One has also posted strong positive operating cash flows lately. The company's credit portfolio continues to show improvement and the company's global financial services segment should show growth going forward. We think shares are trading right around fair value, so investors should wait for a pullback if they are interested in acquiring a stake.
Office Depot (NYSE:ODP): Tepper completely sold out of the ODP position. Office Depot, the big office supply retail chain, continues to struggle at the operational level amid stiff competition. Results show in the share price, which has been relatively flat over the last year and last ten years after stellar growth in the 1990's. The company is in decent shape financially, but shares remain overvalued given that growth opportunities are limited. We do not recommend that investors buy shares at these levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.