Moving on to some of David Tepper’s other picks, we can see that Citigroup Inc. (NYSE:C), American International Group, Inc. (NYSE:AIG), United Continental Holdings Inc (NYSE:UAL), and The Goodyear Tire & Rubber Company (NYSE:GT) hold spots 2-5 in Appaloosa’s 13F portfolio, and for good reason: each stock’s future earnings stream is being undervalued at the moment.
Looking at Citigroup specifically, we can see a big bank that has a huge edge in growth, particularly because of its focus on emerging markets, while most of its peers concentrate on operations in American soil. While the bank doesn’t break down its revenues by specific countries, various sources note that around 40% of its top line comes from outside of the U.S., and in transitional markets, GDP expansion of 4-5% over the next year is widely forecasted.
With essentially industry-average net margins, this translates into above-average EPS growth, which the Street expects to fall between 11-12% a year over the next half-decade. This consensus is far superior to what’s expected of closest peer JP Morgan Chase (7-8%), and despite this obvious advantage, Citigroup’s forward earnings trade at a nearly identical multiple (8.4X) to that of JPM.
Turning to AIG and United Continental Holdings, both companies have seen near-term headwinds recently. AIG shares were forced to undergo uncertainty over the U.S. government’s stake in the company, but those worries have since passed, as the Treasury sold off its final stake last week. United Continental, meanwhile, had been wounded by high jet fuel prices earlier this year, which have since stabilized.
Both companies’ stocks trade at attractive price-to-earnings growth metrics – AIG at 0.14 and United Continental at 0.92 – and both are expected to ramp up bottom line growth going forward. Over the past five years, AIG’s earnings have experienced an average annual decline of -39.6% a year, while UAL’s EPS has shrank by nearly twice that, but the sell-side expects quite a turnaround going forward. Leaner operations post-restructuring are expected to help AIG achieve annual EPS growth of 17-18% over the next five years, while UAL analysts expect it to grow EPS by around 13% annually.
Last but certainly not least, Goodyear is expected to grow earnings by nearly 40% in 2013 on the back of fortuitous – that is depressed – commodity prices, specifically oil. S&P also cites “increased miles driven,” and an industry-wide “shifting [of] more domestic production to higher-margin premium tires” as near-team positives.
With a market value nearly at parity with the value of its cash on hand, in addition to a forward P/E below 6, there are many reasons for value investors to be excited about Goodyear as well. The company hasn’t paid a dividend on its common stock since 2002, but there looks to be enough earnings-driven appreciation in Goodyear for investors of all styles.
For a longer look at Apple Inc. (NASDAQ:AAPL), David Tepper’s 13F portfolio and his top stock picks in particular, continue reading at Insider Monkey. Here’s some more of our Apple coverage:
