Billionaire David Tepper’s Appaloosa Management has been one of the top performers out of large hedge funds in 2013, helping the billionaire swell his net worth further on performance fees. Another widely followed hedge fund manager, both for his excellent returns and his willingness to go public with some of his new picks, is billionaire David Einhorn of Greenlight Capital. We track Appaloosa’s, Greenlight’s, and hundreds of other hedge funds’ quarterly 13F filings as part of our work developing investment strategies. Among our results has been the finding that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (check out the details on our strategy here); our own portfolio based on this strategy outperformed the S&P 500 by 33 percentage points in the last 11 months. After going through these filings we noticed a few stocks which both Tepper and Einhorn seem to like. Read on for our thoughts on these three names or see a history of picks from Einhorn’s Greenlight Capital and Tepper’s Appaloosa Management.
General Motors Company (NYSE:GM) has been one of Einhorn’s favorite stocks for some time, and at the end of June he had over 17 million shares in his portfolio; our database also shows Appaloosa with a significant position in the automaker. Weaker margins resulted in General Motors Company (NYSE:GM) experiencing a significant decline in earnings last quarter compared to the second quarter of 2012 despite a 4% increase in revenue. With the company valued at 12 times its trailing earnings, many value investors- including David Einhorn publicly, last fall- have argues that it is a good buy as conditions will eventually improve in Europe and U.S. consumers will soon be forced to buy new cars in order to replace an aging consumer auto fleet. Wall Street analysts are on board with this thesis, and so their earnings forecasts imply a forward P/E of only 8 and a five-year PEG ratio well below 1. However, given the recent results, we would avoid General Motors Company (NYSE:GM) for now and might prefer to investigate peer automakers.
Another common pick between both Greenlight and David Tepper’s investment team is perennial hedge fund favorite Apple Inc. (NASDAQ:AAPL). Recently, billionaire activist Carl Icahn announced that he has a significant position in Apple and will meet personally with CEO Tim Cook to push for a larger buyback from the company. The consumer technology company has made some progress in returning more of its large cash hoard to shareholders, but is partially stymied by the fact that much of this cash is held offshore in legal terms for tax reasons. Apple Inc. (NASDAQ:AAPL)’s margins continue to fall, causing net income to decrease about 20% in its most recent quarter compared to the same period in the previous fiscal year, but looking at the valuation it appears that some further decreases in earnings per share are already priced in. The trailing earnings multiple is 12, and that is with Apple Inc. (NASDAQ:AAPL)’s cash and marketable securities accounting for a substantial share of the market cap. As such there is considerable upside if Cook can stabilize the business as well as distribute cash.
