In this article we looked into billionaire David Tepper’s top 10 stock picks.
Although Billionaire David Tepper’s hedge fund is not among the big losers like Melvin Capital and Jack Woodruff’s Candlestick Capital, he still warned investors to remain cautious amid speculative frenzy trading and increased volatility. He said ‘party on.com’ has screwed the shorts in 1999 and ended in the form of a historic bubble, and now it’s ‘gang up inc.’ “It was ‘party on dot-com’ in 1999 that screwed the shorts, and now it’s ‘gang up inc.’ It didn’t end well in 1999 when the dot-com bubble popped. Been there, done that. Old scars,” Tepper said.
David Tepper is famous for his investment in depressed bank securities during the financial crisis, helping Appaloosa to return 132% in 2009. The average returns from hedge fund stands around 25% a year since inception through 2018. David Tepper, who started Appaloosa Management with an initial investment of $57 million, generated a return of 57.6% in the first year and topped the broader market index in the next three years. Fiscal 2003 was a banner year for the hedge fund, with a return of 148% compared to the broader market growth of 26%.
Besides stock picking, the billionaire hedge fund manager is also known for investing in distressed companies’ debt as well as bonds and preferred stocks.
David Tepper of Appaloosa Management
Billionaire David Tepper, who is returning money to investors and planning to turn Appaloosa management into a family office, have benefited from its position in consumer discretionary, technology, financial services and healthcare sectors. The utility sector also performed well during the final quarter despite big losses early in 2020. Appaloosa Management, which have managed $10 billion of 13F securities portfolio at its peak, is currently managing a portfolio of $5.6 billion.
Although the hedge fund’s strategy of selling stocks and returning capital to investors negatively impacted its portfolio value in the last two years, the rally in tech and consumer discretionary stocks in 2020 has significantly added to its 13F portfolio’s market value.
He was born in Pittsburgh, Pennsylvania, and graduated with a degree in Economics from the University of Pittsburgh in 1978. He also achieved an MBA degree in 1982. The legendary investor started his career as a credit analyst at Goldman Sachs in 1985 and promoted to a head trader to deal mainly with junk bonds.
While David Tepper’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
As Appaloosa Management has managed to generate strong returns in the last 27 years, it’s worthy to look at how Billionaire David Tepper is seeking to beat the unprecedented stock market environment. For that, we decided to review the billionaire David Tepper’s Top 10 stock holdings to determine whether his stock-picking strategies are still working. Appaloosa’s top ten holding accounts for almost 77% of the overall 13F portfolio.
10. Visa Inc (NYSE: V)
Shares of payment technology company Visa Inc (NYSE: V) underperformed in the last twelve months amid concerns related to coronavirus and restrictions over international travelling. Visa is the tenth largest stock holding of billionaire David Tepper’s portfolio, accounting for 2.40% of the portfolio. The hedge fund initiated a stake in Visa during the second quarter when its shares were trading at multi-years low.
Qualivian Investment Partners, which has returned more than 9% for the third quarter, presented a smart long term investment case for Visa in an investor’s letter. Here is what Qualivian Investment Partners stated:
“Visa was a positive contributor in the quarter, just less so than our other holdings. Visa’s fiscal Q4 quarter (calendar Q3) results were better-than-expected as revenue and EPS beat street expectations driven by stabilizing domestic transaction volumes and good expense control. Although results showed continued pressures from depressed crossborder volumes, which may continue for the foreseeable future as with MA, we believe the worst is behind us and our long-term thesis of V’s structural positioning on the other side of the pandemic remains intact. Looking to the back half of 2021 and going into 2022, we see a recovery in cross-border activity, which together with traditional spending improvements at the POS, leaves considerable room for upside upon reopening. Further, once the macro normalizes (medium term), we believe V (and MA) will continue to benefit from structural drivers including increased contactless payments, more eCommerce transactions, as well as a lift in the value-added services like fraud/gateway/marketing services, and demand for other flows such as B2B, G2C and use of Visa Direct. There is no credible competition on the horizon for the Visa/Mastercard payment networks.”
9. Mastercard Incorporated (NYSE: MA)
The fund manager has also used the dip in Mastercard Incorporated (NYSE: MA) stock price as a buying opportunity. The hedge fund initiated a position in payments technology giant during the second quarter of 2020 and it is the 9th largest stock holding of Appaloosa Management. Mastercard also underperformed in 2020 but shares recovered significantly from multi-years low hit in early 2020.
Qualivian Investment Partners have also highlighted the confidence in Mastercard in an investor’s letter. Here is what Qualivian Investment Partners stated:
“Mastercard: MA continued to see significant headwinds in its higher margin cross-border transaction volumes/revenues because of the drastic drop in cross-border travel (both personal and corporate) due to COVID related lockdowns. We do not see this portion of MA’s business recuperating before the wide-scale global distribution and adoption of a COVID vaccine in the back half of 2021 going into 2022. The flipside to this is that COVID has accelerated the digitization of cash payments, especially as card not present eCommerce transactions continue to accelerate in the COVID era, and likely permanently shifting consumer shopping and payments behavior in favor of digitized transactions. The other offset to the weakness in cross-border volumes we saw is better expense control on the part of the management team, which will likely continue in the coming quarters. While MA’s cross-border revenues and earnings will continue to be impacted in the next 9-12 months, we expect the continued share gain of digital cash payments at the expense of paper transactions to accelerate. Furthermore, MA continues to invest in value-added services (marketing, fraud detection, etc…) as well as supporting more digital payment modalities on their payment rails, supporting our long-term thesis on this digital payment stalwart.”
8. Twitter Inc (NYSE: TWTR)
Shares of Twitter rallied (NYSE: TWTR) more than 40% in the last twelve months. The hedge fund has initiated a position in the social media platform at the beginning of this year and it accounts for 2.87% of the overall portfolio.
Carillon Eagle Mid Cap Growth Fund has highlighted few stocks including Twitter in an investor’s letter. Here is what Carillon Eagle Mid Cap Growth Fund stated:
“Twitter’s user count continues to accelerate due to the global stay-at-home situation as well as the numerous positive changes the company has introduced on the platform in order to keep users engaged. The addition of various topics and lists along with the expansion of video have led to more users joining the platform and kept existing users more engaged. We believe the next positive development on the horizon could come from the company’s ability to increase the monetization of these users.”
7. Alphabet (NASDAQ: GOOG)
Billionaire David Tepper’s Hedge fund has also benefited from its Alphabet (NASDAQ: GOOG) stake as shares of Google rallied 30% in the last twelve months. Google is the long-running investment of Appaloosa Management. The firm has initiated a position in Alphabet in 2014. It is the seven largest stock holding of Tepper’s 13F portfolio, accounting for 6.69% of the overall portfolio.
Avory & Co, an investment management firm, has presented the bright outlook for Alphabet in a fourth quarter investor’s letter. Here is what Avory & Co stated:
“Alphabet (Google) was another purchase in mid-March as the pandemic crushed ad budgets. The company reorganized and leaned into its productivity suite to capture a meaningful share of the collaboration market. The quick pivot to product expansion and user-interface modifications allowed Google to end the year with 4 of the top 9 most downloaded productivity apps. 2020 brought the investment focus back to the quality of management, given that it was the CEOs and their executive teams decisions and execution, that proved to be the most critical part of any business during the year. The current and future outcomes of many of this business will be directly related to the decisions management made in the roughly 60 days of March and April.”
6. Amazon (NASDAQ: AMZN)
The hedge funds strategy of holding the shares of world’s largest e-commerce platform provided huge gains in the last two years. Shares of Amazon rallied 76% in the last twelve months, thanks to staying at home policies. David Tepper has initiated a position in Amazon at the beginning of 2019 and it is the sixth-largest stock holding, accounting for 7.88% of the overall portfolio.
L1 Capital International Fund, which returned 5.1% for the quarter, highlighted the confidence in Amazon in an investor’s letter. Here is what L1 Capital stated:
“Several investments in the technology sector were trimmed on valuation grounds with the proceeds used to increase our investment in Amazon. Amazon’s successful flywheel business model and Amazon Web Services are well known. However, we believe the current share price under‑appreciates:
– The consistency and longevity of Amazon’s growth potential in its key businesses;
– The importance of additional revenue streams such as advertising which are high margin and growing rapidly; and
– The strengthening barriers to competition and competitive advantages arising from Amazon’s stepped‑up investment in logistics and other infrastructure.”
5. Facebook (NASDAQ: FB)
The shares of social media giant Facebook (NASDAQ: FB) performed well during the pandemic year due to social distancing policies. Appaloosa Management has been holding Facebook’s position since 2016 and it appears that the hedge fund has benefited from its investment. This is because shares of Facebook grew 27% in the last twelve months, extending the five years gains to 186%. It is the fifth-largest stock holding of David Tepper’s hedge fund, accounting for 8.18% of the overall portfolio.
A global asset management firm Oakmark Funds, which returned 24.44% for the fourth quarter, highlighted few stocks including Facebook in an investor’s letter. Here is what Oakmark stated.
“Facebook currently sells at approximately $273 per share or 26 times consensus 2021 earnings estimates of $10.47 per share. That might not seem excessive for such a high-quality company, but it certainly would not meet our value criteria if that was the whole story. But it’s not. For starters, Facebook is expected to have $29 per share of cash at the end of 2021, and, as we all know, cash currently earns almost nothing. Subtracting cash from the stock price, we are only paying $244 per share for the business or 23 times earnings.
There is more. Analysts believe that WhatsApp, a popular messaging service owned by Facebook, reports a GAAP loss, yet its subscribers have quadrupled since Facebook acquired the service in 2014. If WhatsApp‘s current subscriber base was valued at the same price-per-subscriber as in 2014, it would now be worth $31 per Facebook share. Using analyst forecasts for revenue several years out, that $31 per share seems reasonable as it roughly matches Facebook’s current price-to-sales multiple.”
4. Micron Technology (NASDAQ: MU)
The chipmaker Micron Technology (NASDAQ: MU) is the fourth largest stock holding of Appaloosa’s 13F portfolio, accounting for 10.17% of the portfolio. Shares of Micron rallied close to 40% in the last twelve months. The hedge fund has been holding its position in the chipmaker since 2016 and raised its stake by 31% in the September quarter of last year.
Bonsai Partners, which return of 63.3% for the third quarter, claimed in an investor’s letter that Micron is an attractive stock pick. Here is what Bonsai Partners stated:
“If there’s one investment mistake I’ve made multiple times in my career it’s accepting lower quality businesses available at attractive prices. I hope I’m not repeating this mistake again with Micron. Acquiring a low-quality business at a great price usually does not lead to great investment returns, but neither does a great business at a low-quality price. You have to have both to earn superior returns.”
3. T-Mobile US, Inc. (NASDAQ: TMUS)
Communication services company T-Mobile US, Inc. (NASDAQ: TMUS) has generated big gains for David Tepper’s hedge fund in 2020. This is because the hedge fund is holding a big position in T-Mobile US and its shares rallied almost 60% in the last twelve months. TMUS is the third-largest stock holding of Appaloosa Management, accounting for 10.54% of the overall portfolio.
Oakmark Funds, which returned 23% for the second quarter, highlighted the confidence in T-Mobile US in an investor’s letter. Here is what Oakmark Funds stated:
“We initiated a position in T-Mobile after the company announced that regulators would approve its merger with Sprint. AT&T and Verizon have long dominated the market for wireless services due to their incumbent network quality advantage. The recently closed merger of T-Mobile and Sprint creates the first opportunity for a challenger to build the fastest, most reliable and highest capacity wireless network in the United States. We believe the impact of this combination will be non-linear from not only a network perspective but also a financial one. Our long-term investing horizon enables us to look several years ahead to assess the benefits of scale, synergy and low-incremental cost growth, which should generate more subscribers, faster revenue growth and higher margins. We like that the company will be led by veteran T-Mobile managers who have successfully integrated previous acquisitions and have gained impressive market share, despite a previously inferior network. A secondary offering by a large, non-economic seller gave us the opportunity to purchase our stake at a below market price.”
2. Alibaba Group Holding (NYSE: BABA)
The Chinese e-commerce giant Alibaba Group Holding (NYSE: BABA) is the second-largest stock holding of Appaloosa Management. The hedge fund has initiated a position in BABA in 2017 and it accounted for 11.54% of the portfolio. Shares of Alibaba soared almost 22% in the last twelve months.
Aikya Investment Management, which returned 21% for the fourth quarter, highlighted the confidence in the growth prospects of Alibaba in an investor’s letter. Here is what Aikya Investment Management stated:
“Our long-term predictions suggest Alibaba can generate $60 billion of free cashflow in 2030. Working in the assumption that Alibaba will be a much more mature business in 2030, we would expect our investment to at least generate a 5% free cash flow yield. This implies Alibaba should be worth $1.2 trillion in 2030, and if we then factor in appropriate adjustments to the share count for share-based compensation then we would expect to earn a 3% return in dollars from today’s share price.”
1. PG&E Corporation (NYSE: PCG)
David Tepper’s hedge fund has been holding a position in PG&E Corporation since 2017 and it was the largest stock holding of Tepper’s portfolio at the end of the September quarter. The hedge fund has raised its stake by 803% in the September quarter to 13.41% of the overall portfolio. Shares of PG&E Corporation underperformed in 2020.
Baupost Group has highlighted few stocks including PG&E Corporation in an investor’s letter. Here is what Baupost Group stated:
“Fortunately, our investment in the subrogation claims and equity of Pacific Gas and Electric, the firm’s largest position, was not impacted by the COVID-19 fallout. As we expected, PG&E’s bankruptcy plan was confirmed by the judge overseeing the case, and the company emerged from bankruptcy on July 1st. Importantly, upon emergence, cash was placed in a trust for the benefit of the subrogation creditors. A substantial initial distribution from this trust, estimated to be roughly 80% of anticipated recoveries, is expected to be paid later this month.”
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