Here's What This 149-Bagger Hedge Fund Has Been Buying and Selling

By Markets Fool.com


Source: JetBlue.

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We should never blindly copy any investor's moves, no matter how famous, talented, or successful the investor. Still, it can be useful to keep an eye on what smart folks are doing, and 13F forms can be great places to find intriguing candidates for our portfolios.

Appaloosa Management, founded by investing giant David Tepper, is known for investing in the debt of companies in distress. Tepper's investing history includes debt and stock in companies such as Enron and Worldcom. He made billions on bank stocks in 2009 after they had imploded and before they recovered.

Appaloosa Management's reportable stock portfolio totaled $5.7 billion in value as of March 31.

Why should you look at Appaloosa Management's moves? Well, in a July 2013 letter to shareholders, Tepper noted that if someone had invested $1 million in his hedge fund in 1993, their investment would have grown to $149 million over the next 20 years. Investing in the S&P 500 instead would have left you with $5.3 million. Appaloosa's performance reflects an average annual net gain of 28%.

So let's see what big moves Appaloosa Management made in the quarter ended March 31.

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Interesting developments
Here are a few interesting details in Appaloosa Management's latest quarterly 13F filing.

The company did a lot of moving in and out of various airline stocks. For example, JetBlue Airways Corporation is a new holding, and Appaloosa increased its stake in Delta Air Lines by 45%. At the same time, Appaloosa sold out entirely of American Airlines Group Inc and trimmed its United Continental Holdings Inc position by 19%.

JetBlue is appealing as an investment, with a reasonable forward-looking P/E near 11. It's free-cash-flow positive, with rising net income and net margins. JetBlue has recently been challenging Southwest Airlines , which now carries the most domestic passengers, by touting its low fares, more comfortable seats, and assigned seating.

Delta Air Lines, meanwhile, has also been performing well despite taking a hit due to hedged fuel costs in an environment of low oil prices. In the coming year, though, the company expects to save some $2 billion in fuel costs, and it's reducing its capacity abroad in response to weak revenue growth. Management forecasts $4 billion to $5 billion in free cash flow this year, and it has paid down some $10 billion in debt.

Appaloosa's sale of American Airlines may be due in part to its merger with US Airways, as merged companies don't always integrate seamlessly and quickly. United Continental, meanwhile, might not inspire a lot of confidence simply because it has taken last place in customer satisfaction in the industry for three years in a row.

Photo: Flickr user Kevin Stanchfield.

Micron Technology was another new position in the quarter. It looks attractively valued, with a recent P/E of 8.3 and a forward-looking P/E of 7.5, both lower than its five-year average of 14.5. Its profit margins are growing, and its acquisition of Japanese chip specialist Elpida has turned out well, giving it economies of scale and a major share of mobile DRAM chips. The company's last quarter was solid, but management issued soft near-term guidance, unnerving some investors. For those who can tolerate volatility, the company's broadproduct mix should offer some comfort.

Finally, Appaloosa closed its position in American Realty Capital Properties Inc . It's not the only one losing confidence in the company after an accounting scandal (featuring errors that were reportedly discovered and then covered up), a CEO departure, and an FBI investigation. The company is under new management, which aims to restore credibility and strengthen its balance sheet while diversifying its assets.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. Therefore 13F forms can be great places to find intriguing candidates for our portfolios.

The article Here's What This 149-Bagger Hedge Fund Has Been Buying and Selling originally appeared on Fool.com.

Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter,owns shares of Micron Technology,. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.