We recently compiled a list of the Billionaire David Tepper’s 10 Long-Term Stock Picks. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other long-term stock picks of Billionaire David Tepper.
David Tepper’s Appaloosa Management is a multi-billion dollar hedge fund that was co-founded by billionaire Carolina Panthers owner Tepper in 1993. The fund was initially launched with a focus on distressed debt, which Tepper had years of experience in following a seven-year run as a credit analyst and head trader at Goldman Sachs.
Appaloosa quickly built a name for itself on the backs of those distressed equities and Tepper’s aggressive investment style, returning 57% within its first six months of operation and has delivered impressive compound returns of greater than 25% since inception. It was managing $800 million in assets within five years of launching, which has since grown to $16.8 billion as of late 2023.
That figure would be much greater if not for the fact that Tepper began transitioning his fund into a family office in 2019, beginning the process of returning money to outside investors. By 2022, nearly 90% of Appaloosa’s assets were owned by either Tepper, his family, or Appaloosa employees.
Appaloosa’s 13F portfolio contained just 38 long positions heading into the final quarter of 2024, and was valued at $6.73 billion, up from $6.18 billion at the end of June. The fund added four new positions to its portfolio during Q3, while unloading three former holdings.
Tech stocks held a dominant position in the fund’s portfolio for the third straight quarter, accounting for 38.5% of its value. The fund also had significant exposure to both communications and consumer discretionary stocks, at 24.6% and 23.1% respectively.
Appaloosa’s exposure to various sectors was markedly different just five quarters earlier, when tech stocks accounted for just 7.1% of its 13F portfolio, while energy and utilities stocks came in at 15% and 21.7% respectively. The fund also had much greater exposure to healthcare stocks at that time, which accounted for 9.2% of its portfolio value, compared to just 2.4% at the end of September 2024.
Of particular note is not just the sector allocations of Tepper’s fund, but also where those stocks originate from. Appaloosa’s top two stock picks are both Chinese stocks, as are 4 of its top 12 equity holdings. The fund has also built a stake in a major Chinese large-cap ETF. The bulk of those China-based additions to Appaloosa’s portfolio have come within the past five quarters, just ahead of major stimulus initiatives and economic policy shifts by the Chinese government that have helped spur in a rebound in the world’s second-largest economy.
In a September interview on CNBC’s Squawk Box, Tepper noted that despite some recent gains in Chinese stocks, they are still trading significantly below past valuations and at just single-digit earnings multiples despite double-digit growth rates. He contrasted that to the S&P trading at a 20+x multiple to highlight the ongoing attractiveness of Chinese stocks. Tepper added that the Chinese government has exceeded expectations when it comes to its stimulus plans, which should bode very well for the Chinese economy in the months and years to come.
Given Appaloosa’s highly concentrated portfolio and the relatively short timeframes with which it overhauls its holdings, there is notable value in focusing on those stocks that the fund has held on to for several years.
Our Methodology
The following data is gathered from Appaloosa Management’s latest 13F filing with the SEC.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
Alphabet Inc. (NASDAQ:GOOGL)
Value of Appaloosa Management’s 13F Position (9/30/2024): $315 million (GOOG)
Number of Hedge Fund Shareholders (9/30/2024): 202 (GOOGL), 160 (GOOG)
Alphabet Inc. (NASDAQ:GOOGL) is the oldest holding in Appaloosa’s 13F portfolio to make the top ten list, spending a little over a decade as one of the fund’s stock picks. Alphabet has consistently ranked as one of hedge funds’ top stocks throughout that time, with no less than 310 funds being long GOOG or GOOGL shares since 2017.
Alphabet Inc. (NASDAQ:GOOGL) shares have gained 117% since the end of 2022 despite the tech giant facing numerous regulatory challenges around the world. In fact, some analysts view the latest regulatory developments as a potential near-term catalyst for the stock, with Barclays suggesting that GOOGL shares could rally “significantly” if Alphabet’s remedies are chosen over the government’s in the company’s ongoing antitrust case in the U.S.
Alphabet is also restoring investor confidence in its AI capabilities following the much publicized criticism of its “woke” AI chatbot back in February, which made major racial errors in its image generation function. Alphabet’s AI video generator Veo 2 is reportedly outperforming its biggest rival, Sora, in generating high-quality and accurate video content, which is leading to greater adoption among YouTube advertisers. Google’s AI search function Overviews is also being credited with providing a slight boost to Google’s search market share, both of which should boost revenue in 2025 and beyond.
Qualivian Investment Partners discussed why it views Alphabet Inc. (NASDAQ:GOOGL) as a core long-term holding in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
Overall, GOOGL ranks 4th among Billionaire David Tepper’s 10 Long-Term Stock Picks. While we acknowledge the potential of GOOGL, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
