In this article, we discuss billionaire David Tepper’s top 5 stock picks. For Tepper’s investment philosophy and his comments on certain stocks, please see Billionaire David Tepper’s Top 10 Stock Picks.
5. PG&E Corporation (NYSE: PCG)
Value: $527,934,000
Percent of David Tepper’s 13F Portfolio: 7.89%
Number of Hedge Fund Holders: 66
PG&E ranks 5th on the list of billionaire David Tepper’s Appaloosa Management’s top picks. However, the fund slashed its stake in the company by 48% in the fourth quarter. PG&E, which is up 63% over the last 12 months, is also on the portfolio of billionaire Dan Loeb.
Around 66 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, down from 76 funds a quarter earlier.
4. Facebook, Inc. (NASDAQ: FB)
Value: $549,325,000
Percent of David Tepper’s 13F Portfolio: 8.21%
Number of Hedge Fund Holders: 242
Facebook ranks 4th among billionaire David Tepper’s top 10 stock picks. The social media company’s stock has gained 90% in value over the last 12 months. Axios recently reported that Facebook is testing partnerships with publishing platforms with plans to help writers monetize their content. The company is also launching “Instagram Lite” in 170 countries. Facebook ranks 3rd in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
As of the end of the fourth quarter, there were 242 hedge funds in Insider Monkey’s database that held stakes in Facebook, compared to 230 funds in the third quarter. SB Management, with 12 million shares of FB, is the biggest stakeholder in the company.
3. Micron Technology, Inc. (NASDAQ: MU)
Value: $601,440,000
Percent of David Tepper’s 13F Portfolio: 8.99%
Number of Hedge Fund Holders: 100
Semiconductor company Micron ranks 2nd on the list of billionaire David Tepper’s Appaloosa Management. Micron shares are up 163% over the last 12 months. Micron is ending the development of 3D XPoint memory chips amid a tepid response. Micron recently lifted its profit outlook for fiscal second quarter, citing strong demand and prices in both NAND and DRAM sectors.
As of the end of the fourth quarter, 100 hedge funds in Insider Monkey’s database of 887 funds held stakes in Micron Technology, compared to 79 funds in the third quarter. Arrowstreet Capital is the biggest stakeholder in the company, with 17.5 million shares, worth $1.3 billion. MU ranks 21st in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
In their Q4 2020 investor letter, Bonsai Partners highlighted a few stocks and Micron Technology Inc (NASDAQ:MU) is one of them.
Here is what Bonsai Partners said:
“Micron is a manufacturer of memory semiconductor chips. Micron’s stock appreciated 60.1% during the quarter.
Micron’s shares significantly appreciated this quarter for a couple of reasons. First, and most importantly, the DRAM market appears to have begun its cyclical rebound. As a result, we will likely see higher pricing and profitability through at least the calendar year 2021, hopefully meaningfully longer.
Another (and less meaningful) driver wasthat semiconductor stocks have become ‘en vogue’ once again. I may not be old, but I’ve been around the sector long enough to know that when generalists start getting excited about a ‘new paradigm’ around semiconductors, it’s time to be wary.
I wouldn’t call Micron overvalued, but I’d certainly say it’s more fairly priced today compared to when we first purchased it a few months ago.”
2. Amazon.com, Inc. (NASDAQ: AMZN)
Value: $643,895,000
Percent of David Tepper’s 13F Portfolio: 9.62%
Number of Hedge Fund Holders: 273
David Tepper’s Appaloosa Management increased its hold in Amazon by 40% in the fourth quarter, ending the period with 197,700 shares of the company, worth $643.9 million. According to our database, the number of Amazon’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 273 hedge funds that hold a position in Amazon compared to 245 funds in the third quarter. The biggest stakeholder of the company is Masayoshi Son’s SB Management, with 2.26 million shares, worth $7.4 billion. AMZN ranks 1st in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
1. T-Mobile US, Inc. (NASDAQ: TMUS)
Value: $661,439,000
Percent of David Tepper’s 13F Portfolio: 9.89%
Number of Hedge Fund Holders: 103
TMUS tops the list of billionaire David Tepper’s Appaloosa Management. The company, through its U.S. subsidiary, plans to offer up to $3 billion of senior notes in three tranches with maturities in 2026, 2029 and 2031. The company announced during its recent investor day presentation that it expects free cash flow growth to support a $60 billion stock buyback program from 2023 to 2025. The company expects FCF of $13 billion to $14 billion in 2023 and $18 billion in 2026.
With a $1.2 billion stake in T-Mobile, Andreas Halvorsen’s Viking Global owns 8.7 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 103 hedge funds held stakes in TMUS as of the end of the fourth quarter, versus 94 funds in the third quarter. TMUS ranks 20th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
Schroder Investment Management said in their letter that they are hopeful for T-Mobile US, Inc. (NASDAQ: TMUS)’s growth. Here is what Schroder Investment Management has to say about T-Mobile US, Inc. in their investor letter:
“T-Mobile US, Inc.’s (“TMUS”) 2020 merger with Sprint Corporation (“Sprint”) was transformational. The company now controls c.45% of low/mid-band spectrum (which is crucial for 5G) but has only 29% of industry subscribers. We expect this gap to narrow over time, via market share gains, while the deal will also generate significant merger synergies; TMUS should, consequently, achieve substantial profits and free cash flow growth over the next 3-4 years.
TMUS has, hitherto, had an inferior network to its peers, and achieved its subscriber growth via very effective marketing and lower prices, encapsulated in its ‘un-carrier’ approach.
In the 5G era, however, it will have a much better network than its peers – as well as lower prices – because it has more of the critical mid-band (2.5GHz) spectrum than AT&T Inc. (“T”) and Verizon Communications Inc. (“VZ”) combined.
The value of this advantage is reflected in the very aggressive C-Band auction currently underway, in which all three companies have likely spent heavily; T and VZ to supplement their holdings of the key enabling asset for the new 5G era, and TMUS to reinforce its advantage and force its peers to leverage up, so they will be less likely to compete on price. The proceeds from this auction have already reached $81bn (and will entail further substantial spending to ready it for use).
Thus, TMUS is targeting the rollout of its 2.5GHz spectrum across 100mn and 200mn POPs by the end of 2020 and 2021 respectively; this will allow it to offer average speeds of 300Mbps (peak speeds >1Gbps) to subscribers (using only 60MHz of the total 160MHz it owns). Its coverage/offer will be far superior to the competition: T’s standard 5G speeds are 40-60Mbps (i.e. barely faster than 4G LTE); VZ’s 5G ultra-wideband network will offer faster speeds (in theory up to multi-Gbps) but currently covers only 2mn POPs, and is difficult to scale because the mmWave spectrum, on which it relies, propagates only over very short distances and is subject to interference (e.g. by foliage).
It is unlikely that the C-band auction will allow T/VZ to rectify their considerable spectrum lag relative to TMUS: 280MHz is being sold, and VZ requires c.190MHz and T c.150MHz to match TMUS. And the spectrum will take considerable time to clear and be deployed (120MHz clears in December 2021 and 160MHz in December 2023). It is also worth noting C-Band is not nearly as good as TMUS’ 2.5GHz – it has weaker propagation characteristics, thus requiring a much denser network grid which is more costly.
We forecast TMUS to grow its market share of subs by only 100bps per annum 2021-2024, i.e. in line with its prior rates, despite having a better network and cheaper pricing than T/VZ. The key risk to this is stronger competition from Dish Network Corp (“Dish”), who must build out a 5G network as part of the TMUS/Sprint merger conditions. However, it will take time for it to truly be a viable competitor (it targets 50% US POP coverage by 2023), and T/VZ likely have more to lose from a new competitor given their higher prices.
The company has guided to $6.7bn of cost synergies over the next 3-4 years. These have so far come in faster than expected, and we feel that TMUS may exceed its guidance (it beat its targets for the MetroPCS acquisition by 40% and achieved them 1 year early). Network costs represent 63% of expected synergies, and these are cost savings from the decommissioning of cell sites, as the company moves from 110K today to 85K over the next few years. Back office and sales and marketing cost saves will yield the rest.
We estimate that costs/sub will drop from their current c.$26 to c.$19 by 2024 (broadly in-line with VZ) helping drive service margins from 40% to 56%, in-line with T but still well below VZ’s 66% (reflecting TMUS’ lower prices). The combination of modest 3-4% per annum revenue growth, high cost take-out, and declining capital intensity should drive normalised FCF/share to c.$16 in 2024 implying a multiple of c.9x. We feel this is attractive given TMUS’s spectrum advantages and its position as the lowest price, i.e. most competitive, service provider.”
You can also take a peek at Michael Burry’s New Stock Picks and Billionaire Jeffrey Talpins’ Top 10 Stock Picks.
