Where the Smart Money's Going

 | Aug 12, 2011 | 1:15 PM EDT  | Comments
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As we head into the weekend, the 13HF filings are slowly starting to trickle in to Chez Melvin.

Many fund managers wait until the last possible minute to revel their holdings, so by Monday afternoon I expect to be buried in paper. But for now, I can read them at a fairly leisurely pace. Hopefully several of the more-important filings come in this afternoon so I have an excuse not to torture myself watching the Orioles find new and exciting ways to lose baseball games.

Now that we are a comfortable 26 games behind, I can concentrate on football and hope for a Yankees-Phillies World Series.

Looking through the early filings, as usual, Kahn Brothers is amongst the first to file their report. The old-school value firm was not very active in the quarter, but they made some intriguing moves. They cut back on their exposure to regional banks by selling about half of their First Niagara Financial (FNFG) and Flushing Financial (FFIC). The firm continues to show a lot more faith in large banks than I can muster by adding to their stake in Citigroup (C). Kahn also added to its stake in The New York Times (NYT) as that stock has weakened this year. They also added a little to their position in student loan company SLM (SLM). New York Community Bancorp (NYB), Pfizer (PFE) and Merck (MRK) remain the firm's largest positions as of the end of June.

David Tepper of Appaloosa management was also an early filer. It appears that he is giving up on his bullish view on financials. His firm made sharp cuts in his portfolio of financial stocks selling a large portion of their holdings in Bank of America (BAC) and Santander (STD). Appaloosa sold its stake in E-Trade (EFTC) during the quarter. Tepper's fund appears to be getting bullish on energy names. He opened new positions in Western Refining (WNR) and Holly Corporation (HOC) and made large additions to his stakes in Valero (VLO), Marathon Oil (MRO) and Tesoro (TSO). Most of these names are cheaper now that his purchase price as both oil and stocks have weakened sharply this month.

I was happy so see that he added to his already-large stake in Micron Technology (MU). I am long the stock and short a few puts on this stock and am encouraged to see Appaloosa buying. The stock is now trading well below tangible book value and the company remains profitable in a weak semiconductor market. When the economy turns, so will sales of electronic products and computers and Micron should reward patient investors handsomely over time. Over the next year, demand for smartphones and tablet products could also drive revenues for this company and I think the recent selloff is way overdone.

They also bought another old favorite and increased their holdings in Mueller Water (MWA). At this price I think you almost have to start accumulating this stock. It may take a long time to get paid off on this water infrastructure name, but I think you will get paid off in many multiples of the current stock price. When the economy does recover and municipal finances improve, the water and sewer systems of this country will see an enormous amount of spending to repair and replace old, outdated water systems. Mueller will see sharp spikes in sales and earnings for an extended period of time when this happens. The company has reduced costs and lowered its debt levels, so margins should expand in the second half of the year as well.

These 13HF filings can act as the best research department in the history of Wall Street. A look inside the buying and selling of the very best stock pickers can give you valuable insights into the mind of the market.

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