Billionaire David Tepper’s Latest Moves On GM, Apple, Nike, More

Appaloosa Management, led by billionaire David Tepper, is one of the investment firms whose filings we look for first amid the deluge of 13F filings that flood the SEC’s website leading up to each quarter’s filing deadline. It was earlier this year that we noted Tepper had seemingly grown bearish on U.S stocks, as he sold off many prominent positions in American companies, including his holdings of Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB). Tepper wound up taking an even larger position in Apple later in the year than the one had earlier closed, and has again made a prominent move in Apple, which we’ll get to shortly. We’ll also cover four of Tepper’s other big moves during the quarter, including a closed position and a bearish bet against a sports apparel icon.

Hedge funds and other big money managers like Tepper tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of 102%, beating the broader market by over 53 percentage points (see the details).

Tepper’s on-again, off-again relationship with the shares of Apple Inc. (NASDAQ:AAPL) appears to be somewhat off-again, as the billionaire made a big move out of the stock in the third quarter. While he does still hold 1.31 million shares of Apple, worth over $144 million, he sold off nearly half of his position in the third quarter, a position he had just added in the second quarter. Tepper’s move mirrors the collective move out of the stock by investors in our database, as ownership of it fell by 11 to 133, and those investors owned $3.86 billion less in Apple Inc. (NASDAQ:AAPL) shares than they did a quarter earlier, a drop of 18% (the stock did fall by 12% during the quarter, accounting for two-thirds of that dip). While shares have rebounded slightly in the fourth quarter, they are up by just 3% this year, which will classify its performance by many as unexpectedly weak.

The stock appears to be caught between having strong fundamentals, yet having a fundamental flaw in the company’s heavy reliance on one primary source of revenue, the growth of which analysts fear could wither away in the future. The stock certainly has big breakout potential but it’s awaiting a catalyst to realize it, which won’t come from even the most glowing iPhone sales numbers. The hopes that the Apple Watch would be that catalyst are now mostly dashed, as its sales performance has been underwhelming, at least compared to the perhaps overly optimistic sales estimates of 30 million-to-50 million units in its first year that many analysts had predicted. Carl Icahn is standing firm with his Apple Inc. (NASDAQ:AAPL) position, as he still owns 52.76 million shares.

Let’s move on to Alibaba Group Holding Ltd (NYSE:BABA), a holding which Tepper disposed of during the third quarter. This wasn’t actually a surprise, as Tepper admitted during a CNBC interview in September that he had sold off the position of 1.36 million shares, which he had just opened in the second quarter. The big selloff of Chinese stocks in August was likely the catalyst that spurred Tepper’s change of heart on the stock, as that may have convinced him that the Chinese market was too weak in the near-term to support Alibaba Group Holding Ltd (NYSE:BABA)’s valuation. That valuation has fallen quite heavily since its IPO last year however, from a P/E of over 50 at that time, to one that is just over 20 today, which has made Alibaba a much more attractive stock than it was. Shares have already rebounded in the fourth quarter by about 33% after falling under $60 in late-September. Boykin Curry and Daniel Och both made big additions to their Alibaba Group Holding Ltd (NYSE:BABA) holdings in the third quarter, buying 2.05 million shares and 4.76 million shares respectively.

General Motors Company (NYSE:GM) remained Tepper’s top pick as of September 30, though it also fell under his axe during the third quarter. He disposed of 5.91 million shares, cutting his holding by 31% in the process. General Motors Company (NYSE:GM) enjoyed a very strong third quarter, as it ran roughshod over earnings estimates, which has turbo boosted its stock in the fourth quarter (it’s up by over 17%). Low gasoline prices continue to be a strong tailwind for the automotive industry, with truck sales proving to be particularly robust, with GM’s up by 16% through the first nine months of the year. Trading at a forward P/E of just 6.6 and paying a dividend with a yield of just over 4%, there’s a lot to like about General Motors Company (NYSE:GM)’s stock right now, which is doubtlessly why it remains Tepper’s top pick. Warren Buffett added 9.0 million shares to his GM holding in the third quarter, lifting it to an even 50 million shares.

We’ll look at two more big moves of Tepper during the latest quarter on the next page.

Tepper does not do a lot of options trading, which makes his new Nike Inc (NYSE:NKE) position a rarity (and quite intriquing). Tepper’s 13F revealed a position of put options underlying 359,500 shares of the iconic sports apparel and equipment company, which has enjoyed a fairly steady run-up over the past three years which has pushed its P/E over 30 and pulled its dividend yield under 1%. On the other hand, Nike Inc (NYSE:NKE) sports low debt and has been consistently growing earnings, with strong global sales growth, led by China. Dicks Sporting Goods Inc (NYSE:DKS) reported weak earnings yesterday, which put some downward pressure on Nike’s shares, leaving them relatively flat for the fourth quarter. Lansdowne Partners and Lone Pine Capital are two firms we track which don’t agree with Tepper’s stance and are long Nike Inc (NYSE:NKE).

Lastly, Southwest Airlines Co (NYSE:LUV) was one of the new additions to Tepper’s portfolio during the third quarter, and the largest of the bunch. The 1.64 million-share holding is just the latest bet by Tepper on the airline and travel industries, with the billionaire also invested in Priceline Group Inc (NASDAQ:PCLN), Delta Air Lines, Inc. (NYSE:DAL), JetBlue Airways Corporation (NASDAQ:JBLU), United Continental Holdings Inc (NYSE:UAL), and now Expedia Inc (NASDAQ:EXPE), another new pick. As international airlines are being stung by the U.S dollar, Southwest Airlines Co (NYSE:LUV)’s makes for a better pure play on the industry tailwinds, namely lower fuel costs, as it operates primarily in the U.S. After dipping to its 2015 low right around the mid-point of the year, shares have rallied by over 40%, and that rally could continue, with Southwest coming off a very strong third quarter in which operating income rose by just under 100% year-over-year. Southwest Airlines Co (NYSE:LUV) is also held in the portfolios of elite investors Ken Griffin and Zach Schreiber, among others.

Disclosure: None