The New Jersey-based hedge fund Appaloosa Management LP has disclosed an equity portfolio valued at some $4.04 billion as of the end of the second quarter of 2015. The equity portfolio is mainly invested in Consumer Discretionary (38%), Technology (15%) and Industrials (15%) stocks. The fund’s last 13F filing showed that the fund reduced its holdings in the financial sector.
The greatest reduction in the quarter was United Continental Holdings Inc. (UAL, Financial). The stock comprised 4.68% of the portfolio in the first quarter but only 1.99% in the second quarter. In United Continental, the fund held 3.97 million shares in the previous quarter and 1.52 million shares according to its latest filing; this represents a 61% reduction. It is important to mention that the stock lost 21.17% during the April-June period, so Appaloosa Management President David Tepper made a good decision.
Although the company has made an agreement with Air China to introduce 22 new routes between the two countries, it can’t stop the drop in the stock market. The firm has two key problems to resolve. The first one is the one related to employees to achieve cost savings. The second one is technical problems due to robust systems. On the other hand, two factors will continue benefiting the company: a stronger demand and lower fuel costs. Further, it is making some moves internally to improve the operation.
Regarding its valuation metrics, the stock is undervalued. It sells at a trailing P/E of 8.30x, trading at a discount compared to a median of 14.0x for the industry. To use another metric, its price-to-book ratio of 5.27x indicates a premium versus the industry average of 1.27x while the price-to-sales ratio of 0.57x is above the industry median of 0.53x.
Looking forward, the decline in its price might indicate that is a good opportunity to buy the stock at a cheap price. Most analysts have a bullish opinion of the company: 2 Hold Rating(s) and 15 Buy Rating(s). When looking at the consensus price target, it stands at $76.44 according to MarketBeat, giving an interesting 33.42% upside potential. Further, Yahoo! Finance's consensus price target is $78.47, an upside potential of 37.0%. However, Credit Suisse (CS, Financial) recently lowered the price target to $77 from $80.
Another prominent investor of the company is George Soros, who has reduced his position by 38% to 1.3 million shares, valued at $69.05 billion, as of the end of Q2 2015. However, Sarah Ketterer, Louis Moore Bacon and Joel Greenblatt have initiated new positions in the stock in the second quarter with 1,889,402; 45,000 and 190,901 shares, respectively.
Disclosure: As of this writing, Omar Venerio did not hold a position in any of the aforementioned stocks.
