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 EQT Corporation (NYSE:EQT) 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.
EQT Corporation (NYSE:EQT)
Value of Appaloosa Management’s 13F Position (9/30/2024): $65.8 million
Number of Hedge Fund Shareholders (9/30/2024): 47
Appaloosa trimmed its stake in EQT Corporation (NYSE:EQT) by 6% during the third quarter, as it did with both of the energy stocks above, ending September with just under 1.8 million shares. The fund added EQT to its portfolio in the final quarter of 2020. Numerous other funds made big additions to their EQT holdings during Q3, including Steve Cohen’s Point72 Asset Management and Ken Griffin’s Citadel Investment Group.
Analysts were impressed with EQT Corporation (NYSE:EQT)’s strong earnings beat in Q3, when the natural gas producer earned $0.12 per share on an adjusted basis, double what estimates were projecting. The company also grew revenue by 7.6% year-over-year to $1.28 billion despite a challenging commodity price environment. EQT’s rapid integration of Equitrans Midstream, which it acquired in July 2024, also drew plaudits, with EQT reporting that it had achieved over 60% integration by the end of Q3. UBS and Piper Sandler both raised their price targets on EQT by $2 following the company’s Q3 earnings report, to $42 and $34 respectively.
Legacy Ridge Capital Management discussed why it would take a stake in EQT Corporation (NYSE:EQT) following its merger with Equitrans in the fund’s Q2 2024 investor letter:
“In addition to Vistra’s performance compelling us to reorder the top of the portfolio, two other positions had news warranting brief updates: Summit Midstream Partners (SMLP) continues restructuring the business and balance sheet, and Equitrans Midstream (ETRN) is getting acquired by EQT Corporation (NYSE:EQT).
Lastly, we wrote about Equitrans Midstream (ETRN) in the 2023 mid-year letter, primarily discussing that company’s long and expensive journey completing the Mountain Valley Pipeline and the short-term opportunity we took advantage of. After all the hand wringing and stress with respect to that one project the whole business will end up right where it started, as part of EQT Corp. (EQT). In March, EQT announced they are acquiring each ETRN share for .3504 EQT shares. The transaction should close within the next several weeks.
EQT is the top natural gas producer in the United States with a dominant position in the Appalachian Basin and will become one of the lowest cost gas producers in the US, if not the lowest, after consummating this merger. Our fund is going to exchange the ETRN shares and become EQT owners. The investment checks important boxes for us: 1) a disciplined management team focused on tangible value creation; 2) an ability to generate significant FCF that gets returned to shareholders; 3) exposure to a commodity with strong secular demand trends, which gives us a call-option on higher prices. At only 5% of our assets it will start as a small position for us, but with natural gas prices volatile and back in the low-$2’s we should have ample opportunity to exploit the volatility over time and hopefully make it bigger.”
Overall, EQT ranks 8th among Billionaire David Tepper’s 10 Long-Term Stock Picks. While we acknowledge the potential of EQT, 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 EQT 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.