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Billionaire David Tepper’s Long Term Picks Include Microsoft Corporation (MSFT)

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Microsoft Corporation (MSFT)We maintain a database of quarterly 13F filings from hundreds of hedge funds, including billionaire David Tepper’s Appaloosa Management. While one objection to the use of 13Fs is that the information is a bit out of date by the time they are released (Appaloosa’s most recent filing discloses many of its long equity positions as of the end of March), we’ve actually found that they can be useful in developing investment strategies; for example, 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). We can also use our database to find stocks which Tepper has owned for at least two years, and therefore probably still likes. Here is our quick take on Appaloosa’s five largest holdings from Q1 which it had at least $100 million invested in at the end of March 2011 (or see the full list of stocks the fund reported owning over time).

Credit: Microsoft Corporation (NASDAQ:MSFT)

Tepper and his team reported a position of 8.5 million shares in Citigroup Inc. (NYSE:C) in the filing. The bank had made our list of the ten most popular stocks among hedge funds during the first quarter of 2013 (check out the full top ten list) and, even after rising about 90% in the last year, still looks like a potential value play from some angles. Citigroup Inc. (NYSE:C) is still valued at a discount to the book value of its equity with a P/B ratio of 0.8, and with Wall Street analysts expecting its recent earnings growth (net income was up 30% in the first quarter of 2013 versus a year earlier) to continue it is valued at a forward P/E of 9.

APPALOOSA MANAGEMENT LPThe fund has been a fan of airlines the past couple years, and owned 8.5 million shares of United Continental Holdings Inc (NYSE:UAL) at the beginning of April. Investors typically hate the bankrupt-prone industry, but US Airways Group, Inc. (NYSE:LCC)’s pending merger with American Airlines has the potential to result in more pricing power for airlines due to industry consolidation. The sell-side is bullish on United Continental Holdings Inc (NYSE:UAL) (as well as many other airlines), and so the current price equals 6 times consensus earnings forecasts for 2014. Ken Heebner’s Capital Growth Management is another shareholder in United Continental (research more stocks Heebner owns).

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