Billionaire David Tepper and his New Jersey-based hedge fund Appaloosa Management LP needs no introduction. Ever since its inception in 1993, Appaloosa Management has been one of the best performing hedge funds on the Street, hitting continuous home runs by investing in distressed securities. In 2001 – after the dot-com bubble burst – the fund generated a return of 61% and repeated that stellar performance after the financial crisis in 2009 by betting on financial stocks. Since Mr. Tepper spent a considerable part of his career at Goldman Sachs’ high-yield trading desk and has generated a significant portion of his wealth by investing in distressed securities, it is obvious that he has a knack for identifying the best fixed income opportunities available in the market quite early on other major. Taking that into account, in this article we have decided to focus on the top five dividend stocks that Appaloosa Management was betting on going into the last quarter of 2015.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 49% gain) over the last 37 months (see the details here).
#5 Ingersoll-Rand PLC (NYSE:IR)
– Shares Owned by Appaloosa Management LP (as of September 30): 689,566
– Value of Holding (as of September 30): $35 Million
Ingersoll-Rand PLC (NYSE:IR)’s stock took a big hit during the third quarter (falling by 24%) after it reported its second-quarter results. However, this slump made the stock more lucrative for hedge funds and five more funds covered by Insider Monkey became bullish on the company during that period, including Appaloosa. Though Ingersoll-Rand PLC (NYSE:IR)’s stock tried to recoup some of the losses in the fourth quarter, it still ended the year down by 12.5%. Nevertheless, the $0.29 per share quarterly dividend Ingersoll-Rand PLC currently pays translates into an attractive annual dividend yield of 2.10%. On December 22, analysts at Sanford C. Bernstein reiterated their ‘Outperform’ rating on the stock, but lowered their price target to $65 from $66. David Harding‘s Winton Capital Management also initiated a stake in Ingersoll-Rand PLC during the third quarter by acquiring 616,462 shares of the company.
#4 Eastman Chemical Company (NYSE:EMN)
– Shares Owned by Appaloosa Management LP (as of September 30): 782,729
– Value of Holding (as of September 30): $50.66 Million
Amid a 20% fall in Eastman Chemical Company (NYSE:EMN)’s stock during the third quarter, Appaloosa Management LP reduced its stake in the company by 9%. The specialty chemicals manufacturer currently trades at a forward price-to-earnings multiple of 8.81, which is considerably lower than its peers and sports a respectable dividend yield of 2.73%. Billionaire Ray Dalio‘s Bridgewater Associates increased its stake in Eastman Chemical Company (NYSE:EMN) sevenfold to 381,038 shares during the third quarter.
#3 Huntsman Corporation (NYSE:HUN)
– Shares Owned by Appaloosa Management LP (as of September 30): 8.04 Million
– Value of Holding (as of September 30): $77.89 Million
Huntsman Corporation (NYSE:HUN) lost half of its market capitalization in 2015. During the third quarter, when the stock declined by 55%, Appaloosa Management LP sold 45,000 shares of the company. However, seven more funds covered by Insider Monkey went long the stock during the same period, which suggests that the lucrative 4.40% annual dividend yield that the stock provides could be one of the reasons behind this increase in popularity. For the fourth quarter of fiscal 2015, analysts expect Huntsman Corporation (NYSE:HUN) to report EPS of $0.25 on revenue of $2.44 billion, considerably lower than the EPS of $0.33 on revenue of $2.95 billion it posted for the same quarter last year. Billionaire Jim Simons‘ Renaissance Technologies initiated a stake in Huntsman Corporation during the third quarter and disclosed 1.28 million shares in its last 13F filing.
#2 Whirlpool Corporation (NYSE:WHR)
– Shares Owned by Appaloosa Management LP (as of September 30): 1.13 Million
– Value of Holding (as of September 30): $167 Million
After reaching their lifetime high of $217.11 in February last year, shares of Whirlpool Corporation (NYSE:WHR) have registered a gradual decline and currently trade over 30% lower from that peak. However, this decline has helped in increasing the annual dividend yield of the company, which currently stands at 2.45%. Most analysts that cover the stock have a ‘Buy’ rating and believe that it will benefit from General Electric Company (NYSE:GE)’s recent announcement that it won’t be selling its home appliance business to Electrolux due to regulatory obstacles. Apart from Appaloosa Management LP, Edgar Wachenheim‘s Greenhaven Associates also increased its stake in Whirlpool Corporation (NYSE:WHR) by 3% during the third quarter; it held almost 2.6 million shares of the company at the end of September.
#1 General Motors Company (NYSE:GM)
– Shares Owned by Appaloosa Management LP (as of September 30): 12.88 Million
– Value of Holding (as of September 30): $386.8 Million
General Motors Company (NYSE:GM) was not only Appaloosa Management LP’s top dividend stock pick, but also continued to remain its top stock pick, even though the fund reduced its stake in the company by 31% during the third quarter. The record sales the company registered in 2015 and vehicle sales in the US crossing the 17.5 million mark, didn’t help General Motors Company (NYSE:GM)’s stock much and it ended the year down by 2.38%. However, industry watchers and analysts believe that the stock will do well in the future because of the company’s focus on shareholder returns and improving product quality. On December 30, US district judge, Jesse Furman, rejected General Motors’ bid to dismiss the first “bellwether” case against it over the defective ignition switches in its vehicles, paving way for a January 11 trial. Warren Buffett‘s Berkshire Hathaway increased its stake in General Motors by 22% to million shares during the third quarter.