We recently compiled a list of the Billionaire David Tepper’s 10 Long-Term Stock Picks. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other long-term stock picks of Billionaire David Tepper.
David Tepper’s Appaloosa Management is a multi-billion dollar hedge fund that was co-founded by billionaire Carolina Panthers owner Tepper in 1993. The fund was initially launched with a focus on distressed debt, which Tepper had years of experience in following a seven-year run as a credit analyst and head trader at Goldman Sachs.
Appaloosa quickly built a name for itself on the backs of those distressed equities and Tepper’s aggressive investment style, returning 57% within its first six months of operation and has delivered impressive compound returns of greater than 25% since inception. It was managing $800 million in assets within five years of launching, which has since grown to $16.8 billion as of late 2023.
That figure would be much greater if not for the fact that Tepper began transitioning his fund into a family office in 2019, beginning the process of returning money to outside investors. By 2022, nearly 90% of Appaloosa’s assets were owned by either Tepper, his family, or Appaloosa employees.
Appaloosa’s 13F portfolio contained just 38 long positions heading into the final quarter of 2024, and was valued at $6.73 billion, up from $6.18 billion at the end of June. The fund added four new positions to its portfolio during Q3, while unloading three former holdings.
Tech stocks held a dominant position in the fund’s portfolio for the third straight quarter, accounting for 38.5% of its value. The fund also had significant exposure to both communications and consumer discretionary stocks, at 24.6% and 23.1% respectively.
Appaloosa’s exposure to various sectors was markedly different just five quarters earlier, when tech stocks accounted for just 7.1% of its 13F portfolio, while energy and utilities stocks came in at 15% and 21.7% respectively. The fund also had much greater exposure to healthcare stocks at that time, which accounted for 9.2% of its portfolio value, compared to just 2.4% at the end of September 2024.
Of particular note is not just the sector allocations of Tepper’s fund, but also where those stocks originate from. Appaloosa’s top two stock picks are both Chinese stocks, as are 4 of its top 12 equity holdings. The fund has also built a stake in a major Chinese large-cap ETF. The bulk of those China-based additions to Appaloosa’s portfolio have come within the past five quarters, just ahead of major stimulus initiatives and economic policy shifts by the Chinese government that have helped spur in a rebound in the world’s second-largest economy.
In a September interview on CNBC’s Squawk Box, Tepper noted that despite some recent gains in Chinese stocks, they are still trading significantly below past valuations and at just single-digit earnings multiples despite double-digit growth rates. He contrasted that to the S&P trading at a 20+x multiple to highlight the ongoing attractiveness of Chinese stocks. Tepper added that the Chinese government has exceeded expectations when it comes to its stimulus plans, which should bode very well for the Chinese economy in the months and years to come.
Given Appaloosa’s highly concentrated portfolio and the relatively short timeframes with which it overhauls its holdings, there is notable value in focusing on those stocks that the fund has held on to for several years.
Our Methodology
The following data is gathered from Appaloosa Management’s latest 13F filing with the SEC.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
Amazon.com, Inc. (NASDAQ:AMZN)
Value of Appaloosa Management’s 13F Position (9/30/2024): $596 million
Number of Hedge Fund Shareholders (9/30/2024): 290
Topping the list of David Tepper’s top long-term holdings is Amazon.com, Inc. (NASDAQ:AMZN), which the fund has held since Q1 of 2019, and which ranked as its third-largest position on September 30, 2024. Hedge fund ownership of Amazon rose for five straight quarters beginning in Q2 of 2023, before dipping by 7.6% in the latest quarter.
Amazon.com, Inc. (NASDAQ:AMZN) is growing earnings at an even faster rate than it has in several years, with that mark hitting $15.3 billion in Q3, a greater than 50% year-over-year increase. Meanwhile, free cash flow jumped by nearly 200% to $44.9 billion. So while Amazon still trades at a lofty 36x forward earnings, that doesn’t appear at all unreasonable given its recent growth.
There are conflicting opinions on Amazon’s growth prospects from here on out, however, particularly related to AWS. While CEO Andy Jassy believes the bulk of on-premises global IT spending will shift to the cloud over the next decade or two (a trend that comprises the bulk of AWS’s current growth), Alphabet CEO Sundar Pichai struck a more somber tone on AI recently, suggesting that the low-hanging fruit had been picked and that growth in the segment would be slower and far more competitive.
AI aside, Amazon also has strong ongoing growth prospects in retail, the bulk of which (80-85%) is still conducted in-store. Jassy also predicts those figures to flip in the coming ten to 20 years. However, some analysts believe 2025 could be a down year for retail if rate cuts are lower than anticipated and tariffs are imposed on China and/or other countries like Canada and Mexico, raising the cost of goods.
Meridian Hedged Equity Fund believes Amazon.com, Inc. (NASDAQ:AMZN) will continue to grow revenue and improve its profitability, as the fund discussed in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a leading e-commerce company that operates a vast online marketplace for third-party sellers, sells its own products, and provides cloud infrastructure services through Amazon Web Services (AWS). We own Amazon because we believe AWS and advertising will continue to drive long-term revenue growth and profitability improvements. Although the stock didn’t perform well this quarter, we attribute this to a mix of short-term factors, including macroeconomic headwinds impacting consumer and enterprise spending, slowing retail revenue growth, and retail margin expansion falling short of market expectations. Additionally, increased investment in longer-term initiatives like satellite broadband and other experimental projects put further pressure on margins. Despite weaker-than-expected third-quarter guidance, we believe Amazon’s long-term growth story remains strong. We see multiple levers for improved profitability and free cash flow generation over time. We maintained our position in the company during the period.”
Overall, AMZN ranks first among Billionaire David Tepper’s 10 Long-Term Stock Picks. While we acknowledge the potential of AMZN, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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