In this article, we will take a look at 10 value stocks to buy according to billionaire David Tepper. If you want to skip our discussion on Tepper’s history and his hedge fund’s performance, go directly to 5 Value Stocks to Buy According to Billionaire David Tepper.
With a net worth of $16.7 billion, David Tepper is one of the most renowned American hedge fund managers today. Tepper started his career in finance with firms like Equibank and Republic Steel before joining Goldman Sachs in 1985 as a credit analyst. Soon, he gained attention for his expertise in distressed debt and special debt situations. In 1993, he left Goldman Sachs to start his own hedge fund Appaloosa Management with a colleague, Jack Walton.
Tepper gathered a select group of affluent investors through the limited partnership hedge fund. To achieve significant capital gains, the hedge fund employed risky strategies, including borrowing money to invest. Appaloosa Management made its initial investment in Algoma Steel as part of its strategy to target the debt of distressed enterprises. It continued to bet on the bond purchases of struggling businesses like Enron and Williams Co., which later proved profitable. Positions in these firms allowed Tepper’s portfolio to record a 150% gain. The hedge fund started its operations with a capital of $57 million and managed to generate a 57% return on assets in six months. Since then, Appaloosa Management has posted annualized returns of around 25%.
Many people consider Tepper’s bets made after the 2008 market crisis to be among the best market transactions ever. Tepper bought shares of financial firms like Citigroup and Bank of America, which were heavily being sold after the subprime mortgage debacle. Appaloosa Management gained $7 billion after the American government intervened to ensure the banks’ didn’t collapse.
As of Q1 2022, David Tepper’s portfolio is valued at $2.49 billion. The hedge fund opened a position in 2 new stocks, sold out of 12 stocks, and reduced its holdings in 26 stocks during the first quarter of the year. The top 10 stocks reflect a holdings concentration of 70.5%. Some of the popular stocks in Tepper’s portfolio include Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT).
Our Methodology
Let’s begin our list of the 10 value stocks to buy, according to billionaire David Tepper. These stocks have been picked from the Q1 2022 portfolio of Appaloosa Management. We have shortlisted stocks with strong business fundamentals and PE ratios of less than 15. Over 900 elite funds were tracked by Insider Monkey at the end of Q1 2022 to determine the stocks’ popularity among the hedge funds.
Value Stocks to Buy According to Billionaire David Tepper
10. Enterprise Products Partners L.P. (NYSE:EPD)
Appaloosa Management’s Stake Value: $21,112,000
Percentage Of Appaloosa Management’s 13F Portfolio: 0.84%
Number of Hedge Fund Holders: 19
PE Ratio as of June 23: 11.32
Enterprise Products Partners L.P. (NYSE:EPD) is a Houston, Texas-based company involved in the natural gas and petrochemicals trade.
The stock has been a part of Tepper’s portfolio since Q4 2020. The billionaire currently has a stake worth over $21 million in the company.
Enterprise Products Partners L.P. (NYSE:EPD) has generated an average return of 10% on capital invested over the last ten years and offers an attractive dividend yield of 7.61% as of June 23. The stock trades below 7x cash flows in comparison to the average cash flow multiple of over 11x for the industry, making analysts see the stock as materially undervalued.
Enterprise Products Partners L.P. (NYSE:EPD) posted strong Q1 2022 results. EPS Normalized Actual was recorded at $0.6, beating the consensus estimate by $0.07. Meanwhile, the revenue of $13.01 billion also exceeded the analysts’ estimates by $2.54 billion.
Wall Street analysts have given Enterprise Products Partners L.P. (NYSE:EPD) an average 12-month price target of $31.43. The company is currently trading at $23.6 per share with a PE ratio of 11.3x.
Here’s what ClearBridge Investments said about Enterprise Products Partners L.P. (NYSE:EPD) in its Q1 2021 investor letter:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. We added to low-cost, high-quality energy names (including) Enterprise Products Partners LP. We are positive on this company’s strong balance sheets, competitive positions and exposure to an economic recovery.”
As of Q1 2022, Enterprise Products Partners L.P. (NYSE:EPD) was held by 19 hedge funds.
9. Micron Technology, Inc. (NASDAQ:MU)
Appaloosa Management’s Stake Value: $163,569,000
Percentage Of Appaloosa Management’s 13F Portfolio: 6.54%
Number of Hedge Fund Holders: 78
PE Ratio as of June 23: 7.06
Micron Technology, Inc. (NASDAQ:MU) specializes in the production of storage products such as USB drives and flash memory.
Despite the global supply-chain challenges, Micron Technology, Inc. (NASDAQ:MU) posted strong Q2 FY22 results. The firm posted an EPS Normalized Actual of $2.14, surpassing the consensus estimate by $0.16. Moreover, it also managed to beat the revenue estimates by $241.85 million. Micron Technology, Inc. (NASDAQ:MU) recorded a 24.7% YoY growth in revenue and a 380% YoY increase in operating income. Furthermore, the company recorded a stellar free cash flow of $4.86 billion, reflecting a rise of 99.1% from FY21.
These figures represent the company’s robust business fundamentals. With a PE ratio of 7.06x compared to the semiconductor industry’s average PE ratio of 18.1x, Micron Technology, Inc. (NASDAQ:MU) stock is being seen as undervalued with strong growth potential by analysts. On June 21, Vijay Rakesh at Mizuho reiterated a Buy rating on Micron Technology, Inc. (NASDAQ:MU) with a price target of $95. The analyst stated that the bearish macro-economic sentiment offers an attractive opportunity to take a position in Micron Technology, Inc. (NASDAQ:MU).
Micron Technology, Inc. (NASDAQ:MU) was mentioned in the Q3 2021 investor letter of Hazelton Capital Partners. Here’s what the firm said:
“It’s hard to explain how shares of Micron Technology, manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimate earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
As of Q1 2022, Micron Technology, Inc. (NASDAQ:MU) was held by 78 hedge funds.
8. Occidental Petroleum Corporation (NYSE:OXY)
Appaloosa Management’s Stake Value: $161,142,000
Percentage Of Appaloosa Management’s 13F Portfolio: 6.44%
Number of Hedge Fund Holders: 67
PE Ratio as of June 23: 8.52
Occidental Petroleum Corporation (NYSE:OXY) is an American energy company involved in the development and acquisition of oil and gas properties.
Occidental Petroleum Corporation (NYSE:OXY) was one of the E&Ps to have benefitted from the rise in commodity prices during the first quarter of 2022. The company recorded strong free cash flows, which helped improve the balance sheet. Over $3 billion of debt was retired by Occidental Petroleum Corporation (NYSE:OXY) in Q1 as part of its $5 billion debt-reduction scheme in 2022. The target is expected to be achieved by the second quarter of the year. Furthermore, Occidental Petroleum Corporation (NYSE:OXY) also announced a $3 billion share repurchase program to enhance shareholder returns.
In a regulatory filing on June 22, Warren Buffett’s Berkshire Hathaway Inc revealed that it had purchased 9.6 million shares of Occidental Petroleum Corporation (NYSE:OXY). Buffett’s decision followed the company’s earnings call, which discussed the dividend hikes and overall operational progress made by Occidental Petroleum Corporation (NYSE:OXY). Occidental Petroleum Corporation (NYSE:OXY) is trading at a PE ratio of 8.52x as of June 23.
Here’s what Smead Capital Management said about Occidental Petroleum Corporation (NYSE:OXY) in its Q3 2021 investor letter:
“Oil stocks dominated our winners for the quarter. We showed that we have unlimited ability to tempt fate by buying into Occidental Petroleum (OXY) this year after it was our biggest loser of 2020. It gained 16.64% during the third quarter.”
Of the 912 hedge funds in Insider Monkey’s database, 67 funds held a stake in Occidental Petroleum Corporation (NYSE:OXY) as of Q1 2022.
7. Macy’s, Inc. (NYSE:M)
Appaloosa Management’s Stake Value: $192,728,000
Percentage Of Appaloosa Management’s 13F Portfolio: 7.71%
Number of Hedge Fund Holders: 42
PE Ratio as of June 23: 3.74
Macy’s, Inc. (NYSE:M) is an American omnichannel retailer. The company sells a range of products, including apparel, home furnishings, and accessories.
Macy’s, Inc. (NYSE:M) posted strong Q1 2022 results, with earnings and revenue surpassing consensus estimates. The company saw its quarterly sales grow by 13.9% YoY and posted a net income margin of 6.21%. Furthermore, Macy’s, Inc. (NYSE:M) also increased its quarterly dividend by 5% to $0.157 and announced a $2 billion share repurchase program in February.
Macy’s, Inc. (NYSE:M) is trading at a PE ratio of 3.74x, considerably lower than the sector median of 11.5x. Moreover, the company’s P/B value stands at 1.69x, compared to the sector median of 1.72x. Macy’s, Inc. (NYSE:M) has a number of growth strategies lined up for this year. The company plans to expand its small-format store fleet and finalize a new partnership with Toys R Us in 2022. These initiatives are expected to further improve the company’s financial position.
ClearBridge Investments shared its insights on Macy’s, Inc. (NYSE:M) in its Q3 2021 investor letter. Here’s what the firm said about the company:
“Meanwhile, Macy’s, an omnichannel retail organization that operates stores, websites, and mobile applications under the Macy’s, Bloomingdale’s, and Bluemercury brands, also had a strong quarter (+21.5%). Macy’s delivered strong second-quarter earnings, beating on earnings and revenue and raising guidance as the retailer continues to pay down debt and grow its digital business.”
At the end of Q1 2022, Macy’s, Inc. (NYSE:M) was held by 42 hedge funds.
6. EQT Corporation (NYSE:EQT)
Appaloosa Management’s Stake Value: $135,403,000
Percentage Of Appaloosa Management’s 13F Portfolio: 5.41%
Number of Hedge Fund Holders: 42
Forward PE Ratio as of June 23: 11.02
EQT Corporation (NYSE:EQT) is a Pennsylvania-based energy company.
EQT Corporation (NYSE:EQT) boasts a forward free cash flow yield of 16.5% and a forward shareholder return yield of 8.3% as of June 23. In its investor presentation in February, EQT Corporation (NYSE:EQT) shared that it aims to generate over $10 billion in free cash flow within the next five years, starting from FY 2021. Furthermore, the company’s efforts to deleverage its balance sheet have also been successful, with the net debt-to-EBITDA ratio decreasing from 3.2x in 2020 to 2.3x at the end of FY 2021.
On June 13, William Janela at Credit Suisse increased the price target on EQT Corporation (NYSE:EQT) from $41 to $50 and reiterated an Outperform rating on the stock. The analyst also raised his CFPS estimates for the second quarter to $2.36, up from $1.69, citing high Q2 bid week natural gas prices in the US.
ClearBridge Investments discussed its outlook on EQT Corporation (NYSE:EQT) in its Q1 2022 investor letter. Here’s what it said:
“In the early days of the invasion, we made two measured changes to the portfolio based on longer-term fallout we anticipate from Russia’s invasion of Ukraine. First, we initiated small positions in U.S. natural gas producer EQT (NYSE:EQT).
Given its superior environmental profile compared to other fossil fuels, we have long favored natural gas in our energy holdings. Combustion of natural gas releases 50% less CO2 than coal, 25% less CO2 than gasoline and dramatically less particulate and pollution, per the U.S. Energy Information Administration. With the advances in shale production this century, the U.S. has become a natural gas powerhouse with some of the lowest-cost and largest reserves in the world. But because natural gas is difficult to ship across the ocean (it must be liquefied, which requires expensive infrastructure on both ends of the voyage), America’s gas bounty has ironically proved a burden for U.S. producers.
The surplus of natural gas in North America has resulted in low prices and weak earnings for gas-focused producers. Exports, while growing, are restrained by the high cost of building export infrastructure. Europe, in a Faustian bargain, has relied on abundant, inexpensive Russian gas transported by pipeline.
Despite the abundance of low-cost resources and a superior environmental profile, the investment case for U.S. natural gas producers was previously unfavorable due to oversupply in the domestic market. In the days preceding the invasion, we were quick to realize the war would change global energy flows. Europe is shifting away from Russia and toward new sources of imported liquified natural gas. We purchased our stakes in EQT to capitalize on these trends. The recently announced energy pact between the U.S. and Europe represents an early positive datapoint in support of this investment thesis. We funded these purchases, in part, with a trim of Pioneer. While we continue to like Pioneer, the risk/reward outlook for the stock is more balanced following recent gains in the shares.”
EQT Corporation (NYSE:EQT) was held by 42 hedge funds as of Q1 2022.
In addition to EQT Corporation (NYSE:EQT), famous stocks such as Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are a part of Tepper’s Q1 2022 portfolio.
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Disclose. None. 10 Value Stocks to Buy According to Billionaire David Tepper is originally published on Insider Monkey.
