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James Li
James Li
Articles (638)  | Author's Website |

David Tepper Boosts Klarman’s PG&E, Slims Facebook in 3rd Quarter

Top buy is in Californian utility hurt by ongoing wildfires, but sells outweigh buys

November 15, 2018 | About:

David Tepper (Trades, Portfolio), founder of Appaloosa Management, disclosed this week his top two buys were PG&E Corp. (NYSE:PCG) and State Street Corp. (NYSE:STT). Despite this, the guru sold shares of several of his top holdings, including Facebook Inc. (NASDAQ:FB).

A distressed debt specialist, Tepper manages a portfolio of 36 stocks with an equity value of approximately $5.61 billion. The guru’s top sectors in terms of portfolio weight are technology, which occupies 46.55% of the equity portfolio, and health care, which occupies 11.63%.

PG&E

Tepper added 2,197,066 shares of PG&E, a California-based company that tumbled further on Thursday amid “concerns that [the company’s] equipment might be partly responsible for the most destructive wildfire in California’s history” according to CNBC columnist Thomas Franck. The transaction increased Tepper’s equity portfolio 1.80%. While shares averaged $44.53 during the third quarter, PG&E traded at $17.74 at market close, down 30.68% from Wednesday’s close and approximately 60.16% from the average share price.

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Franck mentioned several analysts, including those from Citigroup Inc. (C) and Morgan Stanley (MS), “cut estimates” for PG&E. Morgan Stanley analyst Stephen Byrd said the frequency of the wildfires and “the financial market’s loss of confidence” in Californian utility stocks underscores the importance of new legislation to mitigate the potential risks of financial distress and shareholder value loss stemming from potentially unlimited wildfire liabilities.

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GuruFocus ranks PG&E’s financial strength 4 out of 10 on several warning signs, which include increasing long-term debt, a weak Piotroski F-score of 3 and an Altman Z-score that suggests possible financial distress. Additionally, the company’s profitability ranks 4 out of 10 primarily due to declining revenues and profit margins that underperform over 87% of global competitors.

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Despite declining profitability and share prices, PG&E is still attracting gurus: Seth Klarman (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio) both increased their exposure to the company during the quarter.

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State Street

Tepper invested in 1,185,823 shares of State Street for an average price of $87.86 per share. With this transaction, the guru increased his equity portfolio 1.77%.

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The Boston-based asset management company provides investment servicing, investment management, research and trading services to mutual funds, insurance companies, foundations and endowments. GuruFocus lists four positive investing signs for the company, which include a dividend yield near a five-year high and a price-book ratio near a two-year low.

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Facebook

Tepper sold 1.775 million shares of Facebook for an average price of $181.03, paring 3.97% of his equity portfolio.

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While the company reported lower-than-expected revenue and daily active users during the quarter, GuruFocus still ranks Facebook’s financial strength and profitability 9 out of 10 on several positive investing signs, which include robust interest coverage, a solid Altman Z-score of 23.14 and expanding profit margins. Facebook’s margins and returns outperform over 90% of global competitors, suggesting high profitability compared to peers.

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Guru sells stakes representing top holdings

Tepper’s top five sells for the quarter were Facebook, Micron Technology Inc. (NASDAQ:MU), Allergan PLC (NYSE:AGN), Altaba Inc. (NASDAQ:AABA) and Alibaba Group Holding Ltd. (NYSE:BABA).

The guru sold 4,527,800 shares of Micron Technology for an average price of $50.44 per share, paring his portfolio 2.73%. The semiconductor memory company represents Tepper’s largest holding as of quarter-end.

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Tepper sold 1,397,409 shares of Allergan for an average price of $183.71, paring his portfolio 2.68%. The specialty drug manufacturer represents Tepper’s third-largest holding as of quarter-end.

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The fund manager sold 3,032,700 shares of Altaba for an average price of $70.49, paring his portfolio 2.55%. The company represents Tepper’s sixth-largest holding as of quarter-end.

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Tepper sold 1,142,974 shares of Alibaba for an average price of $176.96, paring his portfolio 2.44%. The Chinese e-commerce giant represents Tepper’s fourth-largest holding as of quarter-end.

Disclosure: No positions.

Read more here:

Two Legendary Investors Are Getting Crushed on This Stock

Top Fund Buys: Facebook and Wells Fargo Rule

David Tepper Stays Confident on Battleground Stock Micron

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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