3 different billionaire hedge fund managers just took on this action

It’s that season again. No, I’m not talking about earnings season – although many companies are still reporting their second quarter results this week. I’m talking about season 13-F.

A 13-F filing is what major hedge funds file 45 days after the end of the quarter, disclosing their trades for the previous quarter. It’s mid-August, which means major hedge funds and investment firms are just revealing their biggest buys of the second quarter. Remember that the second trimester started just two weeks after the COVID-19 pandemic broke out in earnest in the developed world. Yet by the end of the quarter, the United States was already seeing signs of recovery.

What was the “smart money” doing during this turbulent time? Although there is a lot of variation among the major hedge fund managers, three of the most prominent, David Tepper of Appaloosa Management, Stanley Druckenmiller of Duquesne Family Office (which has since transitioned from a hedge fund to a family office) and Keith Meister of Corvex Capital Management, all made large purchases in the same stock during the second quarter. At the end of the quarter, it was the third largest long position in each fund.

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T-Mobile catches their eye

The stock is telecom operator T-Mobile United States (TMUS 0.13%).

Appaloosa Management made T-Mobile its biggest purchase in the second quarter. Although Appaloosa already held a smaller stake in T-Mobile at the start of the second quarter, it added 5.1 million shares, increasing its position by 666% and increasing its allocation to Appaloosa’s long portfolio by 1 .98% to 10.67%. T-Mobile went from a small position to the fund’s third-largest holding at the end of June.

T-Mobile was also the Duquesne Family Office’s biggest purchase; in fact, Duquesne didn’t even own the stock until the second quarter. However, Duquesne quickly added 1.57 million shares of T-Mobile, making it a 5% allocation in his long portfolio, also good for his third position.

T-Mobile also became the third largest position for Corvex Capital Management. Like Duquesne, Corvex didn’t own the stock until the second quarter, but quickly added a million shares, making T-Mobile a 6.3% allocation in its long portfolio and also making T-Mobile the third largest fund position.

T-Mobile was actually not Corvex’s biggest purchase in the quarter, but the second. Corvex purchased even more IAC Holdings (IAC 2.00%), going from not owning the stock to making it a massive 9% position. IAC is a conglomerate of websites that has sold its stake in the leader of dating applications Matching group (MTCH 2.20%) July 1.

What Makes These Portfolio Managers So Optimistic

It is perhaps no coincidence that these funds were interested in T-Mobile at this time. The company just completed its merger with Sprint on April 1, the first day of the quarter that ended in June. Although studies have shown that the majority of large company mergers destroy value, these top managers are apparently optimistic about this particular merger.

There are good reasons to believe that the T-Mobile and Sprint combination will be a success, as T-Mobile has a history that integrates the companies well. Its acquisition of MetroPCS in 2012 is generally considered a resounding success, and T-Mobile’s stock easily beat its competitors, as well as the S&P 500 IndexMeanwhile.

TMUS 7-Year Total Return Chart (Daily)

TMUS Data on 7-Year Total Returns (Daily) by YCharts

Seek cost and revenue synergies in the 5G era

The current deal with Sprint is expected to generate at least $6 billion in cost synergies, but perhaps more importantly, the new T-Mobile now has the most comprehensive portfolio of 5G spectrum in the telecom industry. Long lagging behind in network quality, T-Mobile now has the opportunity to leapfrog the leaders and become the network leader in the 5G era. Combined with the company’s low-cost “One-carrier” philosophy, this could be a disruptive combination in the future.

In addition to these offensive possibilities, T-Mobile is, typically, the cheapest postpaid mobile carrier in a given area, which also gives the stock recession-resistant qualities. Overall, T-Mobile has a strong combination of defensive and offensive qualities that will likely appeal to managers looking for ideal risk/reward combinations in these uncertain times.

Should I follow?

T-Mobile’s stock has risen since late June on the heels of a strong second-quarter earnings report that beat expectations for net additions and adjusted EBITDA. However, I still think T-Mobile is a buy at current levels. The company generated $1.4 billion in free cash flow last quarter, even without realizing much of the cost synergies from the merger. Plus, the 5G era is just beginning, which could lead to even bigger and better things, especially if T-Mobile can maintain its current lead in the 5G network.

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