Billionaire David Tepper is the founder of Appaloosa Management, the $3 billion hedge fund based in New Jersey. Tepper earned a master of science in industrial administration from Carnegie Mellon in ’82, and after donating some $55 million to the graduate university, they named the school of business after him. Outlined below are a couple of his notable stock picks, including Appapoloosa’s top stock pick, Citigroup Inc (NYSE:C), and second-largest position United Continental Holdings Inc (NYSE:UAL).
Tepper’s bet on Citigroup Inc (NYSE:C), making up nearly 8% of the hedge fund’s portfolio, appears to be a solid one as the bank still appears to be undervalued with room to move higher. First-quarter results were positive driven by performance in its securities segment and the North American market; now 2013 revenue is expected to be up 12.9%. Citigroup Inc (NYSE:C)’s P/B ratio still appears to still be well below pre-crisis levels.
Ken Heebner’s Capital Growth Management also has Citi as its top stock holding (check out Heebner’s top stocks).
United Continental Holdings Inc (NYSE:UAL) accounts for approximately 5.8% of the hedge fund’s portfolio. United Continental Holdings Inc (NYSE:UAL) is the 2010 result of United Air Lines merger with Continental Airlines. The airline saw a 0.1% increase in revenue in 2012, but is expected to see 2.5% growth in 2013. The other key for United is that fuel-expense growth is moderating. Fuel expenses increased some 29% in 2011, but only rose 6% in 2012.
The industry tailwinds for the company relate to an improving economy, which should lead to higher travel. Other tailwinds include capacity cuts across the industry that have taken place during the recession. These capacity cuts should lead to improved industry fundamentals and higher prices.
Part of what United is working toward is differentiation from the other airlines. This includes expanding the services it offers on flights. The airline has installed “Economy Plus” seats in the majority of its plans and it has installed flat-bed seats on more than 180 aircraft. The other initiative for the company is placing Wi-Fi service on its long-route international flights, now available on more than 35 aircraft.
What’s more enticing about the stock is that analysts expect the company to grow EPS at a annualized 61% over the next five years. With a P/E ratio of only 9, that puts United’s PEG ratio at a ultra-low 0.1.
After a 40% decline in shares owned, Apple Inc. (NASDAQ:AAPL) now makes up the third spot in Appapoloos’a portfolio and accounting for about 5.1% of its portfolio. This comes as revenue growth appears to be slowing for the tech giant. Fiscal 2013 revenue growth is expected to only be up 12% year-over-year after the 45% rise in 2012.
QUALCOMM, Inc. (NASDAQ:QCOM) is Appapoloosa’s fourth-largest stock holding, making up 4.2% of the funds’ portfolio. Qualcomm focuses on developing products and services based on its advanced wireless broadband technology.
Qualcomm has solid exposure to the 3G wireless and smartphones industry in the emerging markets. Wireless Intelligence believes that more than 1.5 billion 3G subscribers will be added in these regions by 2015.
As well, QUALCOMM, Inc. (NASDAQ:QCOM)’s Snapdragon chipset appears to be gaining popularity, and should give the company an advantage with the growing number of media-focused wireless devices. Qualcomm also has a solid balance sheet, with no long-term debt and some $13.5 billion in cash and short-term investments.