Should You Read into David Tepper’s Alibaba Group Holding Ltd (BABA), Bank of America Corp (BAC) and Warren Buffett’s Goldman Sachs Group Inc (GS) Exit?
Berkshire Hathaway Inc. (NYSE:BRK.A) has reduced its stake in Goldman Sachs Group Inc (NYSE:GS) and Wal-Mart Stores, Inc. (NYSE:WMT) according to the latest regulatory filings. It has also emerged that Appaloosa Management has cut its US stock investments by a third. Run by billionaire founder David Tepper the firm has exited all of its holdings in Alibaba Group Holding Ltd (NYSE:BABA) and Bank of America Corp (NYSE:BAC). It has also trimmed its investments in General Motors Company (NYSE:GM) and HCA Holdings Inc (NYSE:HCA).
Raising Cash for Precision Castparts
The unprecedented move by billionaire investor Warren Buffett is seen as an effort to free up cash needed to complete the acquisition of Precision Castparts. Offloading stakes in Goldman Sachs Group Inc (NYSE:GS) and Wal-Mart Stores, Inc. (NYSE:WMT) comes as a surprise as Berkshire has more than $60 billion of cash on its balance sheet. The holding company holds 11 million shares in Goldman Sachs down from 12.6 million.
Buffett is in the process of finalizing a $30 billion deal for Precision Castparts. Uncertainty over how the firm intends to finance the deal in August saw the S&P put Berkshire on a Negative CreditWatch.
Berkshire said in August that it would use about $23 billion of its cash to finance the Precision Castparts deal. The remaining amount was to come from borrowings. Buffett has already acknowledged that they sold some stocks in an effort to raise some cash for the deal. The selloff spree all but came to haunt Goldman Sachs Group Inc (NYSE:GS) and Walmart both of which remain among Buffett’s top holdings.
Motive behind Selloff
Some analysts, however, remain skeptical over the motive behind the selloff. Proceeds from the sale of Goldman Sachs Group Inc (NYSE:GS) and Wal-Mart Stores, Inc. (NYSE:WMT) shares are quite small compared to the returns that Berkshire derives from dozens of operating businesses.
A stake sale by Buffett in Wal-Mart Stores, Inc. (NYSE:WMT) comes at a time when the retailer is facing immense pressure from Amazon.com, Inc. (NASDAQ:AMZN). With shopping patterns shifting to online, the giant retailer is finding it hard to cope with emerging competition.
Buffett bought $5 billion worth of Goldman Sachs Group Inc (NYSE:GS) stakes in 2008 at the peak of the financial crisis as the credit market was drying up. While his preferred strategy is to hold a stock ‘forever’ he has never shied away from offloading stakes.
Concerns over Earning Expectations
Billionaire investor Tepper sold off his holdings in Alibaba Group Holding Ltd (NYSE:BABA) and Bank of America Corp (NYSE:BAC) in line with his pessimism over the stock market at the moment. The biggest concern for Tepper is that expectations for earnings are too high.
A former trader at Goldman Sachs Tepper sold his stake in Alibaba Group Holding Ltd (NYSE:BABA) valued at $112 million at of the end of the second quarter. The selloff does not come as a surprise as the e-commerce juggernaut has significantly underperformed the market.
Alibaba Group Holding Ltd (NYSE:BABA) has been on a downward spiral ever since it clocked all-time highs of $120 a share. It has seen its sentiments in the Street turn negative due to slowdown in the Chinese economy.
Tepper has also trimmed his holdings in Apple Inc. (NASDAQ:AAPL) by nearly half and bought a new stake in Southwest Airlines Co (NYSE:LUV) valued at $6.2 million as of September. Appaloosa Management has now cut its exposure in US stocks by $1.2 billion to $2.86 billion. It is the smallest portfolio held by the firm since 2011 when the total portfolio was worth less than $1 billion.
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