Appaloosa Management starts new positions 3Q 2013

Appaloosa Management starts new positions 3Q 2013 (Part 1 of 6)

Appaloosa Management starts new positions in FCX, INGR, CYH, THC and sells MSFT, CMCSA—13F Flash A

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Appaloosa Management is a hedge fund founded in 1993 by David Tepper and Jack Walton. It’s based in Short Hills, New Jersey. Appaloosa Management invests in public equity and fixed-income markets around the world. It has about $20 billion in assets under management.

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

In this six-part series, we’ll go through some of the main positions Appaloosa Management traded this past quarter.

Appaloosa started new positions in Freeport-McMoRan Copper & Gold (FCX), Ingredion Inc. (INGR), Community Health Systems Inc. (CYH), and Tenet Healthcare Corp. (THC) and it sold Comcast Corp. (CMCSA) and Microsoft (MSFT).

Why buy Freeport-McMoRan Copper & Gold (FCX)?

Freeport-McMoRan Copper & Gold Inc. reported a 40% increase in revenue to $6.17 billion year-over-year, beating analyst estimates. Net income slightly declined to $821 million ($0.79 per share) for 3Q 2013, compared with $824 million ($0.86 per share) for third-quarter 2012. It said its results reflected strong operating performance from its global mining business together with an impressive and significant contribution from its recently acquired oil and gas operations. During 2Q 2013, FCX completed its $19 billion acquisitions of Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR), adding an attractive oil and gas portfolio to its global mining business.

It said in its earnings call that average recorded copper and gold prices were below the levels seen for 3Q last year, while oil prices were strong in the quarter. FCX said capital expenditures are expected to approximate $5.5 billion for 2013. It said it’s taking steps to achieve significant reductions and deferrals of capital expenditures as well as operating, exploration, and other costs following its July 2013 announcement of $1.9 billion in targeted reductions for 2013 and 2014. It’s reviewing its portfolio of assets for opportunities to accelerate its deleveraging plans through potential asset sales, joint venture transactions, or further adjustments to capital spending plans. It said it’s committed to achieving previously announced debt reduction targets and providing attractive cash returns to shareholders.

Analysts have raised estimates for the stock, as they expect the company to benefit from resource diversification.

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Appaloosa invests in the global public equity and fixed income markets with a focus on equities and debt of distressed companies, bonds, exchange warrants, options, futures, notes, and junk bonds. According to Bloomberg Businessweek, the firm’s client base consists of high–net worth individuals, pension and profit sharing plans, corporations, foreign governments, foundations, universities, and other organizations. Investors commit to a locked period of three years during which their withdrawals are limited to 25% of their total investment.

Appaloosa founder David Tepper’s investment specialty is distressed companies. While most hedge funds underperformed the U.S. stock market in 2012, Tepper’s flagship hedge fund successfully bet on stocks and other securities at key moments in 2012, posting a net return of nearly 30%. In recent years, he’s become known as a philanthropist. His largest gift of $67 million went to Carnegie Mellon University in 2013, whose Tepper School of Business is named after him. He earned his BA in Economics from the University of Pittsburgh in 1978 and his MBA (then known as an MSIA) from Carnegie Mellon in 1982.

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