Taking a little off the top. Appaloosa sold some of what had been its four largest holdings by market value at the beginning of January. The heaviest selling came in its Apple Inc. (NASDAQ:AAPL) position, which decreased in size by about 40%, and in American International Group Inc (NYSE:AIG) where Tepper and his team sold about 30% of their shares. This is an interesting move because Tepper has been publicly bullish on stocks- why then sell financial stocks such as AIG and Citigroup Inc (NYSE:C)? In addition, both Apple Inc. (NASDAQ:AAPL) and American International Group Inc (NYSE:AIG) have been touted as potential value plays. In the case of AIG, this is because the stock is priced at a significant discount to the book value of its equity at a P/B ratio of 0.7. That suggests that it has a potential upside as the enterprise value converges to the value of American International Group Inc (NYSE:AIG)’s assets. Apple Inc. (NASDAQ:AAPL) trades at 10 times its trailing earnings, as the market is pricing in continued declines in net income as a result of falling margins at the consumer technology company. Apple Inc. (NASDAQ:AAPL) and AIG had been the two most widely owned stocks among hedge funds at the end of December (find more stocks hedge funds loved).
Metlife. Appaloosa did buy a significant number of shares of Metlife Inc (NYSE:MET) between January and March, increasing its holdings from 3.4 million shares to 4.6 million. The $47 billion market cap life insurer’s revenue grew by 9% in the first quarter of 2013 versus a year earlier, and the company beat adjusted earnings estimates as it had done in the previous few quarters as well. Like AIG, it trades at considerably less than the book value of its equity; in addition, the forward P/E looks low at 8. Renaissance Technologies, founded by billionaire Jim Simons, owned 5.5 million shares at the end of 2012 (see Renaissance’s stock picks).
Metlife looks like a prospective target for value investors as well, though analyst targets do look to be quite a bit higher than what the company has done on a trailing basis. We of course understand the mindset of any investors who would completely rule out airlines, and certainly some of any inherent value opportunity there has already been captured, but the industry is still worthy of further research in our view. The same is true for Apple Inc. (NASDAQ:AAPL) and AIG: the former has been struggling recently but has a sizable cash hoard (and has very low expectations from the market) while we’ve mentioned AIG’s upside potential given where it is trading relative to book value.
Disclosure: I own no shares of any stocks mentioned in this article.