In a recent interview on CNBC, David Tepper, who runs hedge fund Appaloosa Management, came off as very bullish on the U.S. stock market. The billionaire argued that the economy is improving, that equities tend to have low valuations at the moment, and that monetary policy will fuel a strong recovery in areas such as housing and autos. We noticed that at the end of the third quarter Appaloosa has owned a number of stocks with high beta statistics, meaning that they tend to move up or down more than the market index in response to developments (check out Tepper’s stock picks). We went through Tepper’s 20 largest stock positions by market value in Appaloosa’s most recent 13F filing, and here are the five stocks with the highest beta, all of which the fund had at least $70 million invested in:
Tepper and his investment team increased their holdings of MGM Resorts International (NYSE:MGM) to 6.9 million shares. Because of its high debt load- particularly in combination with being unprofitable- and the nature of the casino business, MGM’s beta is 2.3 indicating that it reacts very strongly to movements in the market. In addition, revenue was about flat last quarter compared to the third quarter of 2011. Fellow billionaire John Paulson had reported almost 38 million shares in its portfolio (find John Paulson’s favorite stocks). It’ll be interesting to see what happens at the company if the economy does see strong growth, but for now we wouldn’t buy the stock.
Chemical company Huntsman Corporation (NYSE:HUN), with a beta of 2.2, was another of Appaloosa’s bullish-on-the-economy stock picks. Huntsman trades at 8 times earnings, on both a trailing and a forward basis, despite the stock’s 72% rise in the last year. However, sales were down in the third quarter versus a year earlier. John Burbank’s Passport Capital owned 11 million shares of Huntsman, making it that fund’s second largest 13F holding (see more top stocks from Passport Capital). Its valuation is attractive, including against other chemical companies, and it might be worthy of further research.