Here's What a Big Gainer Has Been Buying and Selling

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At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And funds that aren't always in lockstep with the broader market can be a particularly valuable source of insight.

Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets.

Q3 2011 update
Appaloosa Management was founded by David Tepper and is known for investing in the debt of companies in distress. Tepper's investing history includes profiting from distressed debt in companies such as Enron and Worldcom. He made billions on bank stocks in 2009 after they had imploded and before they recovered. More recently, he invested in many housing-related companies.

Why should you look at Appaloosa Management's moves? Well, according to the folks at GuruFocus.com, Appaloosa gained a whopping 1,335% in the first decade of this century, compared with just 16% for the S&P 500.

The total market value of Appaloosa Management's disclosed equity holdings as of Sept. 30, 2011 -- the latest quarter for which data is available -- was about $1.4 billion across 39 holdings. The company's 10 largest positions and associated changes in number of shares held as of Sept. 30, 2011, were:

CVR Energy -- reduced 13%.
Goodyear Tire (NYS: GT)  -- reduced 22%.
Valero Energy -- reduced 28%.
Macy's -- reduced 47%.
United Continental Holdings -- reduced 27%.
International Paper -- reduced 34%.
Dean Foods (NYS: DF)  -- reduced 12%.
CF Industries -- reduced 37%.
Citigroup -- reduced 65%.
US Airways -- reduced 24%.

During the quarter, Appaloosa Management did far more selling than buying, but it did significantly up its stake in Calumet Specialty Product Partners. Also, the company sold out of many stocks entirely, including Manitowoc (NYS: MTW) and Walter Energy (NYS: WLT) .

Calumet is a master limited partnership, or MLP, focused on processing crude oil into various products such as lubricants and fuels. Walter Energy had a volatile quarter, falling along with peers partly on concerns about our sluggish global economy, but then rebounding on buyout rumors.

Selected Q3 2011 commentary
Appaloosa Management has a broadly diversified portfolio, with oil & gas, technology, basic materials, and consumer goods representing significant parts of the portfolio. That's a big change from 2009, when the portfolio was heavily weighted toward financial stocks.

Here's where the firm has been winning and losing and making new bets:

Recent winner
Apple was a rare winner for the company in the third quarter, when the S&P 500 sank by about 14%. The reasons are fairly obvious -- the wild success of products such as iPads and iPhones. Many see even more potential not only in new products, but new uses for them, such as the potential uses of iPads in medical settings. The company has a three-star (out of five stars) rating at Motley Fool CAPS.

Recent loser
Shares of Micron Technology (NAS: MU) shed almost 33% in the quarter, but since Appaloosa reduced its stake in the company by 39%, it likely didn't suffer as severe a hit. Remaining shares would have enjoyed a big 25% jump on a single day in November, when a court ruled that Rambus (NAS: RMBS) shouldn't have received damages from Micron and Hynix for alleged price-fixing actions. Micron has a four-star rating in Motley Fool CAPS.

New bets
One of the few new buys in the quarter was E*TRADE Financial (NAS: ETFC) . Down about 45% over the past year, some investors now see it as a bargain. It has faced pressure to put itself on sale, but is trying to turn its fortunes around with moves such as offering commission-free ETFs to its customers. The company has a four-star rating at Motley Fool CAPS.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.

Looking for promising investments? Here are "5 Stocks with Explosive Potential" and "4 Stocks as Cheap as They've Ever Been."

At the time this article was published LongtimeFool contributorSelena Maranjianowns shares of Microsoft and Apple, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Apple, Citigroup, and Dean Foods.Motley Fool newsletter serviceshave recommended buying shares of Walter Energy and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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