Tepper was on its “Squawk Box” segment, and while he discussed a range of topics, he focused on the state of the American economy, specifically on the belief that the Fed’s monetary stimulus gives equities “a lot” of upside, with “very limited downside.” In the hedge fund manager’s opinion, investors would be best served by riding with the Fed – not against it – mentioning that “they’re going to keep on doing this until the unemployment rate goes down.”
At a tick under 8%, unemployment is high enough that we can reasonably expect continued stimulus through at least the next year, Tepper argued, adding that those worried about inflation are still best served by investing in the equity markets. Now, one obvious headwind discussed is the creeping fiscal cliff and negotiations in Washington, but on the subject, Tepper said he was “cheerful to know that they’re talking about not having another deadline in two months,” which would likely signal that a long-term deal was in the works.
While he didn’t mention any specific equity plays, our records allow us to look at what Tepper was bullish on last quarter, likely giving us a good gauge on some individual out-performers that investors can consider buying if they wish to “Tepperize” their portfolios for 2013.
“Tepperize” your portfolio.
Interestingly, Apple Inc. (NASDAQ:AAPL) holds the top spot in Appaloosa Management’s stock portfolio, good for nearly 9% of the fund’s total 13F assets. Over the past four quarters of 13F filings, Tepper has upped his stake in Apple by nearly 13-fold, and added a modest 1% to his holdings in Q3.
In Apple, it’s likely that Tepper sees the same undervaluation story that most bulls are harping on, and at 9 times forward earnings and 11 times free cash, it’s hard to miss. The sell-side expects Apple to grow its EPS by nearly 20% a year through 2017, which is above-average, and with a dividend yield near 2%, we’d rather have the growth prospects of an industry-leading tech giant over a 10-year Treasury, which has a similar yield.
Now, most value investors who have bought in over the past few months are likely kicking themselves due to Apple Inc. (NASDAQ:AAPL)’s moderate selloff, but we believe that the growth catalysts are there to boost shares back to a fairer valuation.
In no particular order, here are some potential events that Cupertino bulls can be looking forward to in 2013: (1) a deal with mega-carrier China Mobile, (2) the release of an Apple TV, (3) a spectrum boost from Congress (given to partner mobile carriers), (4) a low-cost iPhone for emerging markets, and on the quantitative side of things,(5) a dividend hike, or (6) a FY2013 Q1 earnings blowout.
There’s no way to know if some – or any – of these events will come to fruition, but it’s important to note that point No. 2 may be the most important in the short run, as some analysts expect an ‘iTV’ to add $4-$5 onto Apple Inc. (NASDAQ:AAPL) EPS next year (see Apple TV Could Add $4.50 to EPS: Analyst). With growth at a very reasonable price, there’s not much wrong with Apple, and even the technical analysts are finally giving their support as well (see Technical Analyst is Bullish on Apple).
