Apple Inc. (AAPL): Billionaire David Tepper’s Appaloosa Management Sold It, Still Likes Airlines

Appaloosa Management, a hedge fund managed by billionaire David Tepper, has filed its 13F with the SEC, disclosing many of its long equity positions in U.S. stocks as of the end of March. We track 13F filings from hedge funds and other notable investors for a variety of purposes. For one, we use the included information to develop investing strategies, including our finding that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We also evaluate the moves that top managers such as Tepper have made over the previous quarter; here are some things we noticed about Appaloosa’s most recent filing compared to previous quarters:

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).

Airlines. There wasn’t really much change here aside from small sales at United Continental Holdings Inc (NYSE:UAL) and US Airways Group Inc (NYSE:LCC) and a slight increase in his position in Delta Air Lines, Inc. (NYSE:DAL), but airlines now account for three of Tepper’s top ten picks- remarkable considering the industry’s poor reputation as an investment opportunity. Analyst consensus for 2014 implies that all three stocks are cheap, with forward earnings multiples in the 7-8 range, and there is some potential for positive developments in the industry as US Airways Group Inc (NYSE:LCC) looks set to buy American Airlines out of bankruptcy. This consolidation has been suggested as a catalyst for higher prices, and all three of these stocks are up at least 40% in the last year. We think that the industry is worth a closer look, though we might de-prioritize US Airways due to integration risk.