Hedge fund titan David Tepper has made some key portfolio moves in Q2, as revealed by 13F forms filed with the SEC and recently made public. The founder and portfolio manager of the $6.74 billion Appaloosa Management fund drastically cut fund’s holding of Apple Inc. (NASDAQ:AAPL) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) but ramped up shares in fast-growing semiconductor stock Micron Technology, Inc. (NASDAQ:MU).
One of the world’s best fund managers, Tepper is closely tracked by investors keep to replicate his success. Forbes shows that Tepper is the 4th highest earning fund manager with a personal net worth of $11 billion. Appaloosa, a fund owned by employees, has a special focus on distressed debt companies and invests in public equity and fixed income markets around the world. The New-Jersey based fund has also developed a reputation of finding strong investment opportunities in volatile market conditions.
Currently Tepper is most bullish on the tech sector- which he says still look cheaper than the rest of the market. He says: “Any comparisons to past overheated markets are ridiculous. … Look at where multiples and rates were in 1999. I’m not saying stocks are screaming cheap, but you’re nowhere near an overheated market,” Tepper told CNBC on August 15. This matches the portfolio which shows tech as the fund’s most prominent sector:
Bearing this in mind, let’s now dig down into the fund’s three key moves last quarter:
In the second quarter, Tepper slashed the fund’s AAPL holding by a whopping 34% to just 300,000 shares worth $43 million. (To watch Tepper’s track record, click here)
Top Bernstein analyst Toni Sacconaghi estimated on August 15 that Apple could be receiving $3 billion from Google in licensing revenues. This works out at about 5% of Apple’s total operating profit this year. “Google’s willingness to share material revenues with Apple is a testament to the power of Apple’s iOS platform, but we see it as a double-edged sword,” the analyst said. “On one hand, licensing revenues should continue to grow going forward as Apple’s installed base and search usage increases.”
He continued “On the other hand, Google could ultimately decide that its search position is sufficiently strong that it no longer needs to pay to be the default browser.” Sacconaghi has a buy rating on Apple with a $175 price target (9.9% upside). And not only does the analyst have an impressive five-star ranking on TipRanks he also has a strong AAPL track record (76% success rate and 29.1% average return).
In contrast to Tepper, the Street remains very bullish on Apple. The stock has a Strong Buy analyst consensus on TipRanks. In the last three months, the stock has received 26 buy and 8 hold ratings. Meanwhile the $170.58 average analyst price target translates into 7.3% upside from the current share price.
Teva Pharmaceutical Industries Ltd (ADR)
Tepper took a very bearish attitude towards Teva in the last quarter. He cut the fund’s holding in the pharma stock by 57%. The remaining holding of 2.1 million shares is worth just under $70 million. Teva now represents at just about 1.14% of the total portfolio.
Stocks are now trading at a one-year low after a triple whammy of bad news in Teva’s Q2 earnings release. Teva released lower-than-expected results, slashed its guidance for the year and reduced dividend payments. The company subsequently announced that it is cutting over 7,000 jobs and pulling operations from 45 different countries. In response to the announcements, Maxim Group analyst Gabrielle Zhou reiterated her hold rating on the stock but removed her $35 price target.
Zhou sums up the depressing situation as follows: “Teva’s generic business is in the process of extracting acquisition synergies while it faces intense competition and price erosion daily which, when coupled with delays in new product launches, hurts the company. In addition, Teva is still quite dependent on the 40mg Copaxone 40 which could go generic next year. All of this translated into reduced guidance and a significant dividend cut.”
Teva has a Hold analyst consensus rating with 13 hold and 2 sell ratings in the last three months. The stock has no recent buy ratings from analysts. Due to share prices crashing the average analyst price target of $28.17 stands at a 61% upside from the current share price.
In contrast to the previous two stocks covered, Micron was a top pick for Tepper in the last quarter. He raised his holding in the stock by 106% to 6.69 million shares worth just over $193 million.
Five-star Kevin Cassidy of Stifel Nicolaus is also very optimistic on MU. He reiterated his buy rating on Micron with a $60 price target on August 14. This translates into an incredible 99% upside from the current share price. Cassidy, who has a 63% success rate and 35.2% average return on MU, believes that the current NAND flash memory storage well into 2018. This shortage has been very profitable for Micron has a major NAND manufacturer.
Cassidy says: “We believe Micron has greatly improved its Flash cost structure, and expect the company’s costs will continue to decrease moving forward. The company reiterated that it has the smallest 3D NAND die size in the industry, which allows its current products to be more competitive in terms of cost.”
Micron has a Strong Buy analyst consensus rating. In the last three months, analysts have published 16 buy, 2 hold and 1 sell rating on the stock. The average analyst price target of $41.43 translates into potential upside of 37% from the current share price.