When A Good Business Drops 25%

This is a free preview of Porter & Co.’s Distressed Investing. In the full issue, analyst Marty Fridson details the turnaround of this leading American health-products company: recommending its stock to readers. To get the full issue, click here.

Pouncing On This Global Health Products Company… Again

Our past recommendations have worked out quite well,
But since we took profits, the price per share fell,
It languished in the wake of a surprise resignation.
Result: A conspicuous undervaluation.
– Martin Fridson

There was not actually blood in the streets outside any one of the 437 Macy’s department stores around the country.

But David Tepper saw what investors refer to as “the blood in the streets” when few others did… and one of Wall Street’s most successful distressed investors repeatedly turned brick-and-mortar retail panic into a profitable masterclass.

Few investments illustrate Tepper's signature style quite like his decade-plus saga with iconic department-store giant Macy’s (M). Over a 14-year span stretching from 2010 to 2024, the Appaloosa Management founder was involved in a total of 24 transactions in shares of Macy’s, orchestrating two lucrative multi-year campaigns.

In the spring of 2010, U.S. consumer spending was still sluggish following the devastation caused by the Global Financial Crisis. Department store foot traffic was weak, and analysts were prematurely singing the death knell of traditional retail. But where Wall Street saw structural decay, Tepper saw a fortress balance sheet trading at a throwaway valuation.

In Q2 2010, Appaloosa established a massive new position in Macy’s, purchasing 4.84 million shares at an average price of $22.12. As market skepticism lingered through late 2010 and early 2011, Tepper didn’t flinch – he accumulated more. In two follow-on purchases in Q4 2010 (797,000 more shares) and Q1 2011 (1.49 million more shares), Tepper accumulated 6.7 million shares, bringing total capital deployed in this first leg to $161.7 million.

Then came the turn. As consumer confidence rebounded, Macy’s operating performance surprised to the upside. True to his disciplined style, Tepper began taking profits as the share price rose. Between Q3 2011 and Q4 2012, Appaloosa unwound its entire stake – selling 3.03 million shares at $27.08 in Q3 2011, 2.54 million shares at $30.60 in Q4 2011, and finally liquidating its remaining position at $39.26 per share in Q4 2012.

When the dust settled, Appaloosa had collected $206.7 million in total sales proceeds on its $161.7 million investment – generating a clean $44.9 million net profit (a 28% return).

Eight years later, Tepper went at it again. Late 2020 brought the darkest days for retail in modern history: pandemic lockdowns, closed storefronts, and existential dread across commercial real estate. Macy’s stock plummeted into single digits – losing more than 50% of its value in a few short months.

Between the ever-growing e-commerce sector and devastating shutdown from COVID, the consensus was that physical retail was dead.

Tepper stepped back up to the plate.

In Q4 2020, Appaloosa initiated a new holding of 6.4 million shares at a rock-bottom average price of $8.56 per share. It was a classic "blood in the streets" buy.

As vaccine rollouts sparked a ferocious economic reopening in 2021, Macy’s stock surged. Tepper aggressively doubled down. In Q3 and Q4 2021, Appaloosa added a staggering 6.49 million shares at prices ranging between $20.00 and $27.27 per share, betting on sustained consumer demand and inventory discipline.

In this second round of buying, Tepper accumulated $208.2 million worth of Macy's shares. As the overall outlook changed beginning in 2022, Appaloosa locked in gains over 10 separate selling quarters – he yielded total proceeds of $252.9 million against $208.2 million invested, generating a 22%, $44.8 million return.

In total, by recognizing cycles of temporary despair, Appaloosa invested $370 million across both campaigns, generating $459 million in total proceeds and walking away with nearly $90 million in profit.

We in Distressed Investing have made similar moves. Twice buying into exercise-cycling leader Peloton Interactive (PTON) – seeing shares more than double in price. Twice buying into a REIT called Diversified Healthcare Trust (DHC) – and profiting both times. Twice buying into shares of JetBlue Airways (JBLU), and currently waiting for gains to appear as the company rebuilds profits and looks for a buyer.

And now again, with a health-related business we recommended in 2025 and exited just a few months later for double-digit gains… we are getting back into shares of the company, nearly 25% below where we sold them earlier this year.

Subscribe to Marty Fridson’s Distressed Investing to unlock the rest of this issue and more.

Become a Distressed Investing subscriber today to get instant access to the rest of this issue and other valuable subscriber-only content.

A Distressed Investing subscription gets you:

• Monthly Issues – a detailed analysis typically uncovering a new, safe, high-yield distressed corporate bond with double-digit return potential

• Distressed Equities – Leveraging his proprietary formulas and data analysis process, occasionally Marty will recommend a stock with extraordinary upside

• Bond-Buying Education – Investing in bonds is a bit different than investing in stocks. But don’t worry. Subscribers get access to Marty’s Startup Guide on bond buying and Porter & Co.’s complete guide to distressed investing.

• Income Streams – each quarter, Marty ranks eight different income investment vehicles from closed end funds to REITs to dividend growth stocks, showing you which income assets could provide the greatest potential returns

• Buy / Sell Alerts – instant notifications when any bond or stock in our list of recommendations makes a major move worthy of your attention

• And more…

Use the link below today and lock in our lowest rate --> 60% off the usual annual rate.