Top Picks of Billionaire David Tepper’s Appaloosa Management Deliver Strong Performance

Billionaire David Tepper‘s Appaloosa Management LP is one of the few funds on the Street today that can boast of consistently generating decent returns for its investors in the years following the financial crisis. Last year, when several hedge funds found it hard to safeguard investors’ money amid a rise in market volatility, Appaloosa Management LP’s  flagship Palomino fund delivered 11% returns net of fees. Earlier this year, the fund relocated its headquarters to Florida from Northern New Jersey, but being farther away Wall Street doesn’t seem to be having any negative impact on the fund’s performance. Analysis done by Insider Monkey of Appaloosa Management LP’s 13F holdings in companies worth at least $1 billion shows that the 46 long positions held by the fund delivered a weighted average return of 2.7% during the first three months of 2016. The investor will file its 13F for the first quarter soon, but in this post, we will go through two interesting moves made by Appaloosa Management LP during the last quarter of 2015 along with  its three largest equity holdings while entering 2016 and analyze their respective performances so far this year.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Kinder Morgan Inc (NYSE:KMI)

– Shares Owned by Appaloosa Management LP (as of December 31): 9.44 million

– Value of Holding (as of December 31): $141 million

Let’s start with Kinder Morgan Inc (NYSE:KMI), in which Appaloosa Management LP initiated a stake during the fourth quarter itself. Shares of the energy infrastructure company lost more than half of their value in the second-half of 2015, but thanks to a small rebound in oil prices this year they are currently trading up around 12% year-to-date. On April 13, one of the company’s upstream clients, Peabody Energy (NYSE:BTU), filed for bankruptcy. However, according to analysts this bankruptcy won’t have a major impact on the company as its exposure to Peabody Energy (NYSE:BTU) is limited to $30 million. For the first quarter of 2016, Kinder Morgan reported EPS of $0.12 on revenue of $3.20 billion, missing the consensus estimates of $0.19 and $3.76 billion, respectively. According to a recent regulatory filing by Bernard Selz‘s Selz Capital, it continued to own 958,211 shares of Kinder Morgan, as of March 31.

#4 Whirlpool Corporation (NYSE:WHR)

– Shares Owned by Appaloosa Management LP (as of December 31): 1.6 million

– Value of Holding (as of December 31): $237.18 million

Appaloosa Management LP’s decision to increase its stake in Whirlpool Corporation (NYSE:WHR) by 43% during the fourth quarter is paying off handsomely this year. Shares of Whirlpool Corporation (NYSE:WHR) have been on a gradual rise since mid-February and are currently trading up over 25% year-to-date. However, analysts believe that they have more room on the upside since, despite the recent rally, they are still trading at a forward P/E of only 10.30 and at a 2016 EBITDA  multiple of only 7. In December last year, the company filed a petition asking the US government to impose duties on foreign consumer durables companies, alleging them of dumping appliances in the US market. If the US Commerce Department eventually rules in favor of the company, Whirlpool Corporation stands to boost its market share considerably in the coming quarters. Billionaire Ken Griffin‘s Citadel Investment Group reduced its stake in Whirlpool Corporation by 62% to 1.37 million shares during the last quarter of 2015.

#3 Delta Air Lines, Inc. (NYSE:DAL)

– Shares Owned by Appaloosa Management LP (as of December 31): 4.29 million

– Value of Holding (as of December 31): $371.22 million

Despite increasing its stake in the company by 21% during the fourth quarter, Delta Air Lines, Inc. (NYSE:DAL) remained Appaloosa Management LP’s third-largest equity holding while going entering 2016. Delta Air Lines, Inc. (NYSE:DAL)’s stock made its lifetime high of $52.77 in December, but quickly fell 20% within a few weeks and currently trades down 16% year-to-date. On April 14, the company reported its fiscal 2016 first quarter numbers, declaring EPS of $1.32 on revenue of $9.25 billion versus analysts expectations of EPS of $1.29 on revenue of $9.24 billion. Though the company managed to boost its profits 27% year-over-year, largely due to low oil prices, its revenue for the quarter was down by 1% year-over-year. According to recent reports, the company is in talks with Canadian aerospace company Bombardier to buy 125 of its CSeries jetliners to for an estimated cost of $5.3 billion to $6.2 billion.

#2 Alphabet Inc (NASDAQ:GOOG)

– Shares Owned by Appaloosa Management LP (as of December 31): 536.15 million

– Value of Holding (as of December 31): $406.87 million

Appaloosa Management LP increased its stake in Alphabet Inc (NASDAQ:GOOG) by 188% during the fourth quarter, which helped the company jump eight spots quarter-over-quarter and become the fund’s second-largest position at the end of December. Alphabet Inc (NASDAQ:GOOG)’s stock has been largely range-bound this year and is currently trading down by 6% year-to-date. The company is expected to report its first quarter numbers this week and analysts project it to report EPS of $7.95 on revenue of $20.34 billion. For the same quarter last year, the company had reported EPS of $6.88 on revenue of $17.26 billion. On April 14, Goldman Sachs analyst Heather Bellini released a note to her client in which she reiterated her ‘Buy’ rating on Alphabet Inc’s stock and set a price target of $890 on it. In her note, Ms. Bellini also stated that mobile and YouTube will continue to be the growth drivers for the company and its ad revenue for the quarter could come at $14.7 billion, above the consensus estimate of $14.4 billion. Barry Dargan‘s Intermede Investment Partners increased its stake in Alphabet by 42% to 69,079 shares during the first quarter.

#1 General Motors Company (NYSE:GM)

– Shares Owned by Appaloosa Management LP (as of December 31): 12.58 million

– Value of Holding (as of December 31): $428.02 million

After reducing its stake in General Motors Company (NYSE:GM) by 32% during the third quarter, Appaloosa Management LP again brought its holding in the company down by 3% during the fourth quarter. However, General Motors Company (NYSE:GM) still ended up being the fund’s top stock pick while entering 2016. Though shares of General Motors Company have dropped by 10% so far this year, this decline has pushed the stock’s dividend yield to almost 5%. Most automotive analysts who track the company feel that its stock, currently trading at 5.6 times its 2016 earnings and 3.4 times its free cash flow, is excessively cheap. Moreover, with the company increasing its focus on mass=produced electric cars, some analysts project General Motors Company’s stock to start a major bull run soon. For the first quarter of 2016, General Motors Company posted adjusted EPS of $1.26, higher than the consensus estimate of $1.01, while the revenue of $37.3 billion, topped the expectations of $35.75 billion. Hedge funds that boosted their holdings in the company during the first quarter included Ray Carroll’s Breton Hill Capital, which increased its stake by 11% to 275,781 shares.

Disclosure: None