Below we analyze the David Tepper Stock Portfolio: Top 5 Stock Picks. For our methodology and a more comprehensive list of Tepper’s top stock picks, check out David Tepper Stock Portfolio: Top 10 Stock Picks.
5. Energy Transfer LP (NYSE:ET)
Value of Appaloosa Management‘s 13F Position: $113 Million
Number of Hedge Fund Shareholders: 33
Another energy company kicks off the second half of David Tepper’s top 10 stock picks, in this case Energy Transfer LP (NYSE:ET), which Tepper owns 10.2 million shares of after trimming the position by 1% during Q3. Energy Transfer hasn’t seen the same surge in hedge fund ownership as numerous other energy companies have over the past year, but does boast several prominent bulls, including Tepper and David Abrams’ Abrams Capital Management.
Energy Transfer LP (NYSE:ET)’s results continue to soar despite the company’s relative lack of exposure to higher commodity prices, as the vast majority of its contracts are fixed-price. Trailing twelve month (TTM) revenue has jumped to $88 billion from $39 billion in 2020, while gross profit has climbed by more than $3.2 billion during that timeframe to $13 billion.
The company’s strong income generation allows it to handily support its dividend payments, which currently yield an impressive 8.72%. And given its relative lack of reliance on commodity prices, Energy Transfer LP (NYSE:ET) is one of the safer dividend stocks in the energy industry. ET shares have gained 40% this year but that didn’t stop Chairman Kelcy Warren from buying 1.2 million shares between November 7 and 8 at an average price of $12.35.
4. Meta Platforms, Inc. (NASDAQ:META)
Value of Appaloosa Management‘s 13F Position: $119 Million
Number of Hedge Fund Shareholders: 180
Hedge fund ownership of Meta Platforms, Inc. (NASDAQ:META) dropped for the fifth straight quarter in Q3. Tepper also sold off some META shares during the quarter, unloading 13% of his shares, but otherwise maintains strong conviction in the long-term outlook for the struggling social media giant. Larry Robbins’ Glenview Capital and Shashin Shah’s Think Investments were two of the many funds that ditched their META holdings during Q3.
You don’t have to squint very hard to see why hedge funds have been fleeing Meta Platforms, Inc. (NASDAQ:META) in droves. Revenue and user growth is in the low single digits, expenses have been soaring, and CEO Mark Zuckerberg hasn’t shown any willingness to back off of his costly metaverse ambitions.
Yet, it’s also easy to see why so many hedge funds are still long META, especially with shares now 71% off their all-time high. The company is still growing, has a promising TikTok competitor in Reels, and has been taking other initiatives to improve profitability, including slashing its workforce by 12%. Facebook still has the largest user base of any social media platform on the planet and will continue to make boatloads of money, especially as it attempts to better monetize its chat app users.
Baron Funds believes Meta Platforms, Inc. (NASDAQ:META) has a big opportunity in the targeted advertising space, as discussed in its Q3 2022 investor letter:
“Shares of Meta Platforms, Inc. (NASDAQ:META), the world’s largest social network, were down 16% during the quarter primarily due to broader digital advertising weakness and continued difficulties with advertising effectiveness as a result of Apple’s enhanced privacy features implemented in late 2021. We believe Meta will successfully resolve its short-term advertising technology issues by increasing AI adoption and by driving greater in-App user engagement with businesses, enabling it to grow its understanding of people’s interests based on first-party data. Longer term, we believe Meta will utilize its leadership in mobile advertising, massive user base, and technological scale to provide global advertisers targeted marketing capabilities at scale, with additional monetization opportunities ahead in newer areas such as Reels (Meta’s competing solution to TikTok) and e-commerce.”
3. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Appaloosa Management‘s 13F Position: $164 Million
Number of Hedge Fund Shareholders: 271
David Tepper trimmed his stake in Amazon.com, Inc. (NASDAQ:AMZN) by 4% during the third quarter, leaving Appaloosa Management with 1.45 million AMZN shares on September 30. Hedge fund ownership of Amazon ticked up during Q3 after falling by nearly 10% during the first half of 2022. Multiple funds have billion-dollar positions in Amazon, including Ken Fisher’s Fisher Asset Management and David Blood and Al Gore’s Generation Investment Management.
Amazon.com, Inc. (NASDAQ:AMZN)’s bottom-line has been hit hard this year by rising costs and inflation-weary consumers, which has scared off some investors, though not hedge funds for the most part, who see Amazon’s longer-term picture being as bright as ever. The ecommerce giant has exceptional growth opportunities, both in North America and particularly abroad, and Amazon Web Services is still growing at a stellar rate and buffering the temporary downturn in the ecommerce side of Amazon’s business thanks to its strong profitability.
Baron Funds also discussed Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2022 investor letter, suggesting the company has a huge runway for growth in both its core ecommerce platform, as well as AWS:
“Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest e-commerce retailer and cloud services provider. Shares of Amazon increased 6% in the quarter after the company reported strong results with 7% year-over-year revenue growth driven by 33% growth in Amazon Web Services (AWS), Amazon’s leading cloud computing service, while guiding for an acceleration in third quarter revenue growth, which is expected to be between 13% and 17% year-overyear. Amazon’s share of e-commerce is roughly 40%, far ahead of competition, yet domestic e-commerce accounted for only 14.5% of total retail sales (according to U.S. Census Bureau data for the second quarter of 2022), implying durable growth opportunities ahead. Internationally, the opportunity remains large as Amazon still has less than a 2% market share of international retail spending. Its advertising share is also only 3% and growing, underpinned by the structural closed-loop systems it enables (merchants know exactly whether their ad dollars resulted in a purchase since they are all done on the Amazon platform), which enables accurate targeting and measurement. Lastly, AWS has a good runway for growth as the industry still represents only 9.5% out of the $4.3 trillion of global IT spending according to Gartner. Areas such as logistics and health care present additional optionality.”
2. Alphabet Inc. (NASDAQ:GOOG)
Value of Appaloosa Management‘s 13F Position: $192 Million (Class C GOOG shares)
Number of Hedge Fund Shareholders: 196 (GOOGL), 156 (GOOG)
David Tepper sold off 5,000 shares of Alphabet Inc. (NASDAQ:GOOG) during Q3, though his share count rose from 100,000 to just under 2 million courtesy of the stock’s 20-1 stock split in July. After being Tepper’s top stock pick for the previous year, GOOG slides back to second place due in part to shares losing 12% of their value during Q3. Chris Hohn’s TCI Fund Management owns 52.4 million GOOG shares worth $5.04 billion as of September 30, having 17.6% exposure to the stock in its 13F portfolio (and 23% exposure to both classes of the company’s shares).
Alphabet Inc. (NASDAQ:GOOG) shares haven’t been spared during the tech market rout this year, as investors worry about the near-term fate of the company’s monolithic advertising revenue in a recessionary environment. While 2023 could be rougher on that front, Alphabet has done just fine during the current year’s challenges, with ad revenue rising by 12% in Q3 to $165 billion. Google Cloud is also growing at a 40% rate and should bring some added and sustained clout to the company’s already stellar free cash flow generation in the years to come.
Mayar Capital laid out some of the reasons why Alphabet Inc. (NASDAQ:GOOG) dominant search engine is so valuable in the fund’s Q3 2022 investor letter:
“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?
“Google it!”
This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.
Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to’ something. Second the reason Biden’s advice was met with such opprobrium was because Googling something has become almost second nature to us now.
These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.
Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate’ is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate’ as well as that from its other properties such as Mail, Maps, and so on, totaled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…” (Click here to see the full text)
1. Constellation Energy Corporation (NASDAQ:CEG)
Value of Appaloosa Management‘s 13F Position: $219 Million
Number of Hedge Fund Shareholders: 54
Constellation Energy Corporation (NASDAQ:CEG) is David Tepper’s top stock pick as of September 30 despite him trimming the size of his CEG position by 3% during Q3, which left him with 2.63 million shares. CEG shares soared by 45% during Q3, which boosted the value of Tepper’s holding by more than $74 million. Other funds that profited handsomely from their CEG holdings during Q3 included John Smith Clark’s Southpoint Capital Advisors and William B. Gray’s Orbis Investment Management.
Tepper first built a stake in Constellation Energy Corporation (NASDAQ:CEG) in Q2, one quarter after the company was spun off from Exelon Corporation (NASDAQ:EXC). The market is clearly enamored with the spun-off company’s long-term growth potential in light of the Inflation Reduction Act (IRA), as CEG shares have gained 125% this year despite the company posting modest results in Q3.
The company swung to a loss of $188 million during the quarter compared to a $607 million profit a year prior, and cut the top end of its revenue guidance for the year to $2.65 billion from $2.75 billion. Constellation stands to benefit tremendously from the IRA given its strong foothold in the U.S. nuclear power generation space. Among other things, the IRA will provide lucrative inflation-adjusted tax credits to help fuel the company’s operations and growth.
ClearBridge Investments believes the market is starting to recognize the potential for consolidation in the nuclear sector, which should also benefit Constellation Energy Corporation (NASDAQ:CEG), as the fund discussed in it Q3 2022 investor letter:
“U.S. electric utilities dominated top contributors in the quarter, with Constellation Energy Corporation (NASDAQ:CEG), PG&E (PCG) and NextEra Energy (NEE) at the top of the list. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S. Shares are performing well as the market is beginning to understand the potential for consolidation in the nuclear sector, where there is also potential upside from hydrogen.”
For more of the latest stock picks worth considering for your portfolio, check out the 10 Best Biotech Stocks To Buy and the 11 Best Covid Stocks To Invest In.
Disclosure: None.
