Billionaire David Tepper’s Latest Stock Picks

APPALOOSA MANAGEMENT LPAppaloosa Management is a value hedge fund managed by billionaire David Tepper (whose name might sound familiar to any recent attendees of Carnegie Mellon’s Tepper School of Business). The fund has an estimated $16 billion under management. We have gone through Appaloosa’s 13F for the third quarter of 2012 and picked out a few of the fund’s investment themes. Read on for our discussion and compare Appaloosa’s picks to previous filings.

AIG. American International Group, Inc. (NYSE:AIG) was Appaloosa’s largest new position in the third quarter, with the fund reporting a position of 8.3 million shares. AIG had been a frequent buy among hedge funds during the second quarter, including fellow billionaire Dan Loeb’s Third Point, and even after rising 27% year to date AIG trades at about half the book value of its equity. The business is showing signs of improvement, with revenue rising rapidly last quarter compared to the third quarter of 2011, and it trades at 9 times forward earnings estimates. With much of the market still showing poor sentiment against the company, we think it could be a good value stock.

Airlines. The fund had bought shares of United Continental, US Airways Group, Inc. (NYSE:LCC), and Delta Air Lines, Inc. (NYSE:DAL) during the second quarter and added shares of each of those stocks during the third quarter as well. Investors typically fear investing in airlines because of the relatively high bankruptcy risk- many major airlines have declared bankruptcy at some point in the last 20 years- but we’ve been interested in the airlines as value stocks for some time because of their cheap valuations. The forward P/E multiples of these three airlines are in the 4-5 range, with Delta and US Airways having trailing P/Es in that range. Since Wall Street analysts expect considerable growth over the next several years, these results in very low five-year PEG ratios. The industry should drive somewhat low multiples, but the possibility that US Airways will take over American Airlines should also reduce competition and allow for prices to be raised. We’d avoid United Continental, specifically, because its business has not been doing as well recently but we like the other two airlines as value plays.

Autos. Appaloosa increased its positions in General Motors Company (NYSE:GM) and The Goodyear Tire & Rubber Company (NYSE:GT), which had also been among its largest positions at the end of June. GM has become a trendy value stock over the past few months, with billionaire David Einhorn of Greenlight Capital presenting it as a long pick at October’s Value Investing Congress (our analysis of Greenlight’s own 13F showed that fund buying shares during the third quarter). The automaker’s multiples certainly look good- it trades at 9 times trailing earnings- but its peers have P/Es in that same range or only slightly higher, and to put it bluntly they have better brand names than “Government Motors” does. With GM’s earnings actually slipping in the third quarter versus a year earlier, we think that hedge funds like Appaloosa should be looking elsewhere. To Tepper and his team’s credit, they’ve done that by also owning Goodyear. This is a risky stock with high debt loads and pension obligations, and its business was down last quarter compared to Q3 2011, but it trades at only 5 times consensus earnings for 2013 and carries a five-year PEG ratio of 0.2. It’ll probably underperform analyst expectations, but would have to see extremely poor performance in order to prove overvalued at current prices. We think it matches up well with auto parts companies and other alternative ways to play an auto thesis.

For the most part Appaloosa looks like it has picked out some good value stocks- major airlines and AIG look like good buys for investors. We’re less certain of how it’s playing a recovery in the auto industry, and while we can see an argument for Goodyear we’d prefer to own automakers other than GM.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!