Hedge fund guru David Tepper has made some intriguing portfolio moves in Q4, as 13F forms filed with the SEC and recently made public show. The founder and portfolio manager of the $16.5 billion Appaloosa Management fund slashed the Apple Inc. (NASDAQ:AAPL) and SPDR S&P 500 ETF Trust (NYSEARCA:SPY) holdings while boosting shares in social media giant Facebook Inc (NASDAQ:FB).
Appaloosa, an employee-owned fund, is known for specializing in companies with distressed debt and taking full advantage of investment opportunities in volatile market conditions. Investors tracks Tepper’s moves closely, often referring to him as one of the best fund managers in the world. According to Forbes, he is the 4th highest earning fund manager with a personal net worth of $11 billion.
And good news, Tepper is very bullish on the state of the market right now. The fund manager gave an interview to CNBC on March 8 where he said “Not one more regulation is happening and … you have tax cuts coming here.” He concluded “So unless there’s a mess-up in the administration … Unless that happens, nothing’s going to get in the way until inflation starts picking up.”
Now let’s examine how this optimistic outlook played out in Q4:
Tepper cut the fund’s Apple position substantially in Q4 due to worries about Chinese policy- a move he now regrets. The 44% reduction takes the total number of shares owned by Appaloosa in the stock to 450,000 with a $52 million value. Tepper has now revealed that he believes fellow fund manager Warren Buffett made a better trade in Apple than him. Unlike Tepper, Buffet whacked up his Apple position by 20% to $6.64 billion in the last quarter. The shares have since gained 20% since the last filing date.
However Tepper is not planning to re-purchase AAPL shares at their current record price of $139. However Citigroup analyst Jim Suva believes that prices still have further to go. He reiterated his buy rating on the stock on March 7 with a 12-month price target of $160 (15% upside from the current share price. Suva says ‘Near term is the iPhone 8 super-cycle and longer term India (aka Applewood) both of which will drive not only sales & EPS growth but importantly an expansion in Apple’s valuation multiple.’ The iPhone 8 is due to be released in September this year and a radical redesign is expected to mark the anniversary of the first iPhone model.
In Q4 Tepper proved himself to be confident about the future of Facebook, almost doubling the fund’s FB holding to $2.18 million shares worth $251 million. This is now the fund’s fifth biggest holding. The market is also very bullish on Facebook, which has a strong buy analyst consensus rating on TipRanks with no sell ratings published in the last 3 months. Financial accountability engine TipRanks also shows that the average analyst price target of $160 is a 16% upside from the current share price of $138.
Now five-star Citigroup analyst Mark May has raised FB to a “top pick” as the risk/ reward setup has become more favorable for the stock. He notes FB’s strong top-line trends, potentially conservative forecasts and the overcoming of risks related to expense growth and compares this to the “continued lackluster support for GOOGL (e.g., +1% YTD and -4% 52wks relative to the S&P 500).” He reiterated his FB buy rating on March 3 with a $165 price target.
SPDR S&P 500 ETF Trust
Tepper chopped the fund’s SPY holding by 60% to 1 million shares with a value of $223.5 million.
Reducing the fund’s SPY exposure is a probably a good move if you believe the predictions of Robin Griffiths, chief technical strategist at investment manager ECU Group. He told CNBC on March 6 that markets can “go up a lot more” but they are now set for a sharp correction in the second half of the year- potentially October. Griffiths says that the problem lies in the valuation basis which is “expensive, hideously expensive”. Industrial metal stocks are no longer holding back the stock market- in fact they are actually performing very strongly at the moment and this is reversing the former downward trend.