Quarterly 13F filings from hedge funds and other major investors disclose many of these investment managers’ long equity positions as of the end of the previous quarter. This is a bounty of information, but it is fairly old by the time it is released, so many retail investors are not sure how to make use of it. We have researched investment strategies based on 13Fs, including our finding that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy. Since its inception 11 months ago, our portfolio following this strategy has beaten both the S&P 500 and small-cap indices by a substantial amount.
Our database of funds’ historical filings also allows us to see what their long-term picks are: stocks which they also had a large position in two years ago. Read on for our quick take on the five largest holdings in billionaire David Tepper’s Appaloosa Management which it owned at least $100 million of at the end of June 2011, see the fund’s most recent filing on the SEC’s website, or research Appaloosa’s filings over time.
The largest single-stock position in David Tepper’s portfolio at the end of this part June was Citigroup Inc. (NYSE:C), at a position of 9.6 million shares. Wall Street analysts believe that the bank is a good value at current prices as its earnings continue to recover: Citigroup Inc. (NYSE:C)’s profits grew by over 40% last quarter compared to the second quarter of 2012 as they rebounded from poor conditions. Expectations for the next few years result in a forward P/E of only 9 and a five-year PEG ratio of 0.7. Investors can also make a value case for Citigroup Inc. (NYSE:C) in book terms, as its P/B ratio is 0.8.
Another stock which Appaloosa has liked for the past couple years is The Goodyear Tire & Rubber Company (NASDAQ:GT). Between dependence on demand for autos, high conventional leverage, and concerns over its pensions The Goodyear Tire & Rubber Company (NASDAQ:GT) ends up being tightly tied to the broader markets with a beta of 2.4. Analysts are also optimistic about The Goodyear Tire & Rubber Company (NASDAQ:GT)’s upside potential, even after a 60% gain in the last year, and so the stock is valued at only 7 times forward earnings estimates. Net income has been up recently but this has been entirely due to lower costs rather than growth in the business.
United Continental Holdings Inc (NYSE:UAL) is another of Tepper’s long term picks. Airlines have generally done well in the last year on optimism that US Airways Group, Inc. (NYSE:LCC)’s merger with American Airlines will increase industry consolidation and pricing power. With the sell-side expecting good earnings per share numbers for next year, but investors generally shying away from legacy carriers due to their history of bankruptcy, United Continental Holdings Inc (NYSE:UAL) is also supposedly cheap at a forward P/E of 16 and a five-year PEG ratio well below 1. We’d be interested in considering it alongside other large airlines.
US Airways Group, Inc. (NYSE:LCC) itself also happens to have been a large holding for the fund both last quarter and in Q2 2011. Again, in terms of expected earnings for 2014, the stock is trading at an attractive price although investors would have to have some degree of confidence in Street forecasts. In addition, while US Airways Group, Inc. (NYSE:LCC) does stand to benefit from increased market share on specific routes following its deal with American, the merger will prove to be a complicated process which will carry quite a bit of integration risk. Federal regulators may also look for concessions from the company in exchange for approving the deal.
Appaloosa reported a position of 6.3 million shares in Bank of America Corp (NYSE:BAC) last quarter, making it- another recovering megabank- an additional long term stock pick. While it, like Citi, trades at a discount to the book value of its equity (the P/B ratio is 0.7), the forward earnings multiple is 10. In absolute terms that might be considered low, but it is not particularly low for a large bank and in addition does depend on an even greater degree of improvement on the bottom line than its peer.
Disclosure: I own no shares of any stocks mentioned in this article.
