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

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Dec. 12 2013, Published 12:00 p.m. ET

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 sell Comcast Corp. (CMCSA)?

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Comcast has been named as one of the bidders for Time Warner Cable (TWC). There have also been unconfirmed reports claiming that Comcast is considering a joint bid for TWC with Charter Communications (CHTR), in which Liberty Media (LMCA) is the largest shareholder. The deal chatter has boosted the stocks of all players in the paid TV space. Analysts are expecting a consolidation in the industry due to increasing competition from telecom providers and high programming costs.

In its latest quarterly results, Comcast saw a revenue decline of 2.4% to $16.2 billion. Excluding the impact of the London Olympics, which generated $1.2 billion of revenue from Internet and TV advertising in the third quarter of 2012, consolidated revenue for the quarter increased 5.2%, to $16.2 billion. Earnings per share of $0.65 for the third quarter increased 41.3%, excluding gains reported in last year’s third quarter, related to Spectrum Co.’s sale of wireless spectrum licenses and NBC Universal’s sale of its interest in the A&E networks.

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The company added 337,000 combined video, voice, and Internet customers—a 15% increase from last year, driven by growth in high-speed Internet and voice services and stable performance in video, partially offset by video customer losses of 129,000. Cable communications revenue increased 5.2%, to $10.5 billion, but cable advertising revenue decreased 10.8% during the third quarter, reflecting lower political revenue and one fewer week of advertising included in this quarter. In terms of commercial businesses, revenue increased 26.4%, to $836 million, for the quarter.

Revenue from the Cable Networks segment increased 4.0%, to $2.2 billion, compared to the third quarter of 2012. Revenue from the Broadcast Television segment increased 2.6%, excluding the impact of the London Olympics. Revenue from the Filmed Entertainment segment increased 3.3%, to $1.4 billion, compared to the third quarter of 2012, driven by higher theatrical revenue from the strong box office performance of Despicable Me 2. This was partially offset by a decrease in home entertainment revenue due to lower volume of new releases compared to last year. Theme Parks segment revenue increased 7.9%, to $661 million, compared to $614 million in the third quarter of 2012, driven by higher per-capita spending at the Orlando and Hollywood theme parks and higher guest attendance at the Orlando park following the launch of the Transformers attraction. NBCUniversal saw solid results in each of its business segments, with healthy revenue growth.

The company has returned $3 billion of capital to shareholders, including share repurchases totaling $1.5 billion, and dividend payments also totaling $1.5 billion.

The company faces competition from satellite operators DirecTV (DTV) and Dish (DISH), phone companies AT&T (T) and Verizon (VZ), and video streaming providers like Netflix (NFLX).

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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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