In this article we delve into the David Tepper Stock Portfolio: Top 10 Stock Picks.
Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:META) are some of the top stock picks of billionaire money manager and Carolina Panthers owner David Tepper.
David Tepper co-founded the Miami Beach, Florida-based hedge fund Appaloosa Management in 1993. Tepper earned a Bachelor of Arts in economics from the University of Pittsburgh and later an MBA from Carnegie Mellon’s business school, which was named after him in 2004. He worked as a credit analyst with Goldman Sachs for seven years, specializing in distressed debt, before leaving the firm in 1992 and launching his own fund a year later.
Appaloosa has been one of the best performing hedge funds in the world since inception, generating annualized returns of about 25% through 2018 and elevating Tepper to billionaire status more than a decade prior to that. Tepper’s net worth is currently estimated by Forbes at $15.4 billion, ranking him the 98th richest person in the world.
Tepper, who is in the process of closing his firm to outside money and converting Appaloosa into a family office, has taken a bearish stance on equities in recent quarters. His fund’s 13F AUM has declined for six straight quarters, including by 59% during the first half of 2022. Considering 70% of the firm’s assets were in-house as of 2020, returning money to shareholders
That bearish stance persisted in Q3, as Tepper’s fund didn’t make a single addition to its 13F portfolio or even increase the size of any of its existing holdings. On the other hand, it sold off eight of its former holdings and reduced the size of 12 other holdings. All told, Appaloosa’s 13F AUM stood at just $1.36 billion at the end of Q3, down from $6.96 billion at the end of Q1 2021.
Appaloosa remained heavily invested in communications and consumer discretionary stocks, while utilities and telecommunications stocks jumped to the highest weighting in its 13F portfolio. It’s also the greatest exposure Appaloosa’s 13F portfolio has had to telecommunications stocks since 2003. Energy stocks also had double-digit weighting in Appaloosa’s 13F portfolio for the seventh straight quarter.
In this article, we’ll take a look at the stocks that David Tepper has maintained the strongest conviction in while his overall market outlook continues to be decidedly bearish.
Our Methodology
The following data is gathered from Appaloosa Management’s latest 13F filing with the SEC. We follow hedge funds like Appaloosa Management because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q3 2022 reporting period.
David Tepper Stock Portfolio: Top 10 Stock Picks
10. Antero Resources Corporation (NYSE:AR)
Value of Appaloosa Management‘s 13F Position: $32.8 Million
Number of Hedge Fund Shareholders: 65
Meta Platforms, Inc., Alphabet Inc., and Amazon.com, Inc. are a few of the prominent holdings in David Tepper’s stock portfolio. Also cracking the top 10 is Antero Resources Corporation (NYSE:AR), one of several energy companies that Tepper is bullish on. He trimmed the size of several of those holdings during Q3, including AR, which was cut by 13% to 1.25 million shares.
Antero Resources Corporation trailing twelve month (TTM) revenue has soared to $8.4 billion compared to just $3.08 billion in 2020. Thanks to the natural gas company’s cost of revenue rising only marginally during that time, its gross profit has soared from negative $514 million in 2020 to $4.73 billion over the TTM period. Jefferies analyst Lloyd Byrne has a ‘Buy’ rating and $47 price target on AR, noting that the option value on energy stocks is up again and could stay higher for longer without the need for added investment.
Hedge fund ownership of Antero Resources Corporation rose for eight straight quarters through Q2, tripling during that time and hitting an all-time high before dipping slightly in Q3. D E Shaw, Two Sigma Advisors, and Steve Cohen’s Point72 Asset Management are some of the biggest shareholders of Antero Resources.
9. Microsoft Corporation (NASDAQ:MSFT)
Value of Appaloosa Management‘s 13F Position: $54.7 Million
Number of Hedge Fund Shareholders: 272
David Tepper trimmed his fund’s Microsoft Corporation (NASDAQ:MSFT) holding by 6% during Q3 to 235,000 shares. Microsoft is in a dead heat with Amazon.com, Inc. (another favored stock of Tepper’s) as the single most popular ticker among hedge funds. No fewer than 250 funds have been long MSFT each quarter over the past two years. The Bill & Melinda Gates Foundation Trust, managed by Michael Larson, is the largest Microsoft shareholder among the select group of funds tracked by Insider Monkey.
Microsoft Corporation shares are down by 28% this year and a weakening PC market is cause for minor concern, with the company’s More Personal Computing segment contracting slightly in Q1 of Microsoft’s fiscal year (FY) 2023. The company’s other segments continue to steam ahead though regardless of the broader economic conditions, as intelligent cloud revenue grew by 20% year-over-year and overall operating income was up by 6% to $21.5 billion. Microsoft is also a major free cash flow (FCF) machine, topping $63 billion in FCF over the past year.
Carillon Tower also believes Microsoft Corporation is performing well in spite of what the stock market might lead you to believe, as noted in its Q3 2022 investor letter:
“Despite reporting very good quarterly results, Microsoft Corporation underperformed the overall market in August. Technology stocks in general underperformed in August due to fears over slowing global economic growth, potentially leading to cuts in corporate information technology budgets.”
8. UnitedHealth Group Incorporated (NYSE:UNH)
Value of Appaloosa Management‘s 13F Position: $75.8 Million
Number of Hedge Fund Shareholders: 112
David Tepper’s position in UnitedHealth Group Incorporated (NYSE:UNH) was left unchanged during Q3 at an even 150,000 shares. The billionaire money manager sold off 29,000 UNH shares during the first half of 2022. United Health hit an all-time high in hedge fund ownership during Q3 after a 16% jump in the number of funds long UNH during the quarter. Andreas Halvorsen’s Viking Global and Steve Cohen’s Point72 Asset Management were among the funds that added UNH to their 13F portfolios during Q3.
Healthcare is a relatively safe industry to invest in during a recession, as most people are not willing to compromise their health and avoid having necessary surgical procedures or other interventions carried out regardless of their economic health. If anything, and especially given the rising costs associated with healthcare, it will make people increasingly more willing to invest in health insurance. That’s evidenced by the strong performance of UnitedHealth Group Incorporated, which has grown revenue by 14% year-over-year through the first nine months of 2022. The company’s EPS is also projected to rise by about 16% this year to $20.95 at the midpoint of the health insurer’s guidance range.
Distillate Capital still likes UnitedHealth Group Incorporated’s valuation even after the stock has greatly outperformed the market this year, as the fund stated in its Q2 2022 investor letter:
“UnitedHealth Group was among the 2 largest trims at around 1% each. Each stock was up 1% in the quarter compared to the 16% price decline for the S&P 500 and the positions were reduced as the valuations became somewhat less appealing, though still attractive enough to warrant inclusion.”
7. Macy’s, Inc. (NYSE:M)
Value of Appaloosa Management‘s 13F Position: $94 Million
Number of Hedge Fund Shareholders: 31
Macy’s, Inc. (NYSE:M) had been a top five stock pick of Tepper’s for several quarters until Q3, when the stock’s underperformance dropped it to the seventh-most valuable holding in his 13F portfolio. The position was left unchanged during the third quarter at an even 6 million shares, but lost $15 million of its value after shares fell by 14.5%. Numerous other funds bailed on Macy’s during Q3, as there was a 24% drop in ownership of the stock.
Macy’s, Inc. has been a big winner for Tepper so far in Q4, with shares gaining close to 50%. The fashion retailer’s faltering sales growth has been driving off many investors, as same-store sales slumped by 1.5% yeae-over-year in Q2, which then accelerated to a 3% decline in Q3. The company does have some positives going for it though which could be enticing Tepper.
Among other things, it’s done a good job managing its inventory levels ahead of the holiday season, an issue that has been plaguing numerous other retailers. That should ensure that Macy’s delivers solid profits during the holiday quarter, with the company raising its 2022 adjusted EPS forecast by $0.07 following the release of its Q3 results. Macy’s, Inc. also pays out an attractive dividend that currently yields 2.7%.
6. EQT Corporation (NYSE:EQT)
Value of Appaloosa Management‘s 13F Position: $103 Million
Number of Hedge Fund Shareholders: 57
Closing out the first half of David Tepper’s stock portfolio is EQT Corporation (NYSE:EQT), a holding which Tepper trimmed by 12% during Q3 to 2.53 million shares. Hedge fund ownership of EQT has risen for three straight quarters, climbing by 24% during that time. Cliff Asness’ AQR Capital and Louis Navellier’s Navellier & Associates were some of the funds to add EQT to their 13F portfolios during the third quarter.
EQT Corporation is another energy company Tepper likes which has had blowout results in this year. EQT’s TTM revenue has skyrocketed to $12.4 billion from just $2.66 billion in 2020. TTM gross profit has hit $8.2 billion, compared to a loss of $627 million two years ago. Piper Sandler analyst Mark Lear has an ‘Overweight’ rating on EQT and raised his price target on the stock to $63 from $62 earlier this month, but notes that the industry’s capex could rise in the final quarter of this year and into 2023 given growing service costs.
ClearBridge Investments Mid Cap Strategy is bullish on EQT Corporation’s position in the natural gas space, as relayed in its Q3 2022 investor letter:
“We also added natural gas company EQT in the energy sector. As one of the lowest-cost domestic producers, EQT stands to benefit from its position as a leading supplier of natural gas to a world suffering from critically low energy reserves. The Russian invasion of Ukraine and threats to hold natural gas exports hostage have spurred a surge in European energy prices, generating long-term agreements by European countries to purchase U.S. natural gas.
This strong demand and elevated prices have helped EQT strengthen its balance sheet and position it to take advantage as opportunities emerge for natural gas to plug the gaps in the global energy transition from fossil fuels to renewables.”
See where Amazon.com, Inc., Meta Platforms, Inc., and Alphabet Inc. rank in David Tepper’s portfolio by clicking the link below.
5. Energy Transfer LP (NYSE:ET)
Value of Appaloosa Management‘s 13F Position: $113 Million
Number of Hedge Fund Shareholders: 33
Another energy company kicks off the second half of David Tepper’s top 10 stock picks, in this case Energy Transfer LP (NYSE:ET), which Tepper owns 10.2 million shares of after trimming the position by 1% during Q3. Energy Transfer hasn’t seen the same surge in hedge fund ownership as numerous other energy companies have over the past year, but does boast several prominent bulls, including Tepper and David Abrams’ Abrams Capital Management.
Energy Transfer LP’s results continue to soar despite the company’s relative lack of exposure to higher commodity prices, as the vast majority of its contracts are fixed-price. Trailing twelve month (TTM) revenue has jumped to $88 billion from $39 billion in 2020, while gross profit has climbed by more than $3.2 billion during that timeframe to $13 billion.
The company’s strong income generation allows it to handily support its dividend payments, which currently yield an impressive 8.72%. And given its relative lack of reliance on commodity prices, Energy Transfer LP is one of the safer dividend stocks in the energy industry. ET shares have gained 40% this year but that didn’t stop Chairman Kelcy Warren from buying 1.2 million shares between November 7 and 8 at an average price of $12.35.
4. Meta Platforms, Inc. (NASDAQ:META)
Value of Appaloosa Management‘s 13F Position: $119 Million
Number of Hedge Fund Shareholders: 180
Hedge fund ownership of Meta Platforms, Inc. dropped for the fifth straight quarter in Q3. Tepper also sold off some META shares during the quarter, unloading 13% of his shares, but otherwise maintains strong conviction in the long-term outlook for the struggling social media giant. Larry Robbins’ Glenview Capital and Shashin Shah’s Think Investments were two of the many funds that ditched their META holdings during Q3.
You don’t have to squint very hard to see why hedge funds have been fleeing Meta Platforms, Inc. in droves. Revenue and user growth is in the low single digits, expenses have been soaring, and CEO Mark Zuckerberg hasn’t shown any willingness to back off of his costly metaverse ambitions.
Yet, it’s also easy to see why so many hedge funds are still long META, especially with shares now 71% off their all-time high. The company is still growing, has a promising TikTok competitor in Reels, and has been taking other initiatives to improve profitability, including slashing its workforce by 12%. Facebook still has the largest user base of any social media platform on the planet and will continue to make boatloads of money, especially as it attempts to better monetize its chat app users.
Baron Funds believes Meta Platforms, Inc. has a big opportunity in the targeted advertising space, as discussed in its Q3 2022 investor letter:
“Shares of Meta Platforms, Inc., the world’s largest social network, were down 16% during the quarter primarily due to broader digital advertising weakness and continued difficulties with advertising effectiveness as a result of Apple’s enhanced privacy features implemented in late 2021. We believe Meta will successfully resolve its short-term advertising technology issues by increasing AI adoption and by driving greater in-App user engagement with businesses, enabling it to grow its understanding of people’s interests based on first-party data. Longer term, we believe Meta will utilize its leadership in mobile advertising, massive user base, and technological scale to provide global advertisers targeted marketing capabilities at scale, with additional monetization opportunities ahead in newer areas such as Reels (Meta’s competing solution to TikTok) and e-commerce.”
3. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Appaloosa Management‘s 13F Position: $164 Million
Number of Hedge Fund Shareholders: 271
David Tepper trimmed his stake in Amazon.com, Inc. by 4% during the third quarter, leaving Appaloosa Management with 1.45 million AMZN shares on September 30. Hedge fund ownership of Amazon ticked up during Q3 after falling by nearly 10% during the first half of 2022. Multiple funds have billion-dollar positions in Amazon, including Ken Fisher’s Fisher Asset Management and David Blood and Al Gore’s Generation Investment Management.
Amazon.com, Inc.’s bottom-line has been hit hard this year by rising costs and inflation-weary consumers, which has scared off some investors, though not hedge funds for the most part, who see Amazon’s longer-term picture being as bright as ever. The ecommerce giant has exceptional growth opportunities, both in North America and particularly abroad, and Amazon Web Services is still growing at a stellar rate and buffering the temporary downturn in the ecommerce side of Amazon’s business thanks to its strong profitability.
Baron Funds also discussed Amazon.com, Inc. in its Q3 2022 investor letter, suggesting the company has a huge runway for growth in both its core ecommerce platform, as well as AWS:
“Amazon.com, Inc. is the world’s largest e-commerce retailer and cloud services provider. Shares of Amazon increased 6% in the quarter after the company reported strong results with 7% year-over-year revenue growth driven by 33% growth in Amazon Web Services (AWS), Amazon’s leading cloud computing service, while guiding for an acceleration in third quarter revenue growth, which is expected to be between 13% and 17% year-overyear. Amazon’s share of e-commerce is roughly 40%, far ahead of competition, yet domestic e-commerce accounted for only 14.5% of total retail sales (according to U.S. Census Bureau data for the second quarter of 2022), implying durable growth opportunities ahead. Internationally, the opportunity remains large as Amazon still has less than a 2% market share of international retail spending. Its advertising share is also only 3% and growing, underpinned by the structural closed-loop systems it enables (merchants know exactly whether their ad dollars resulted in a purchase since they are all done on the Amazon platform), which enables accurate targeting and measurement. Lastly, AWS has a good runway for growth as the industry still represents only 9.5% out of the $4.3 trillion of global IT spending according to Gartner. Areas such as logistics and health care present additional optionality.”
2. Alphabet Inc. (NASDAQ:GOOG)
Value of Appaloosa Management‘s 13F Position: $192 Million (Class C GOOG shares)
Number of Hedge Fund Shareholders: 196 (GOOGL), 156 (GOOG)
David Tepper sold off 5,000 shares of Alphabet Inc. during Q3, though his share count rose from 100,000 to just under 2 million courtesy of the stock’s 20-1 stock split in July. After being Tepper’s top stock pick for the previous year, GOOG slides back to second place due in part to shares losing 12% of their value during Q3. Chris Hohn’s TCI Fund Management owns 52.4 million GOOG shares worth $5.04 billion as of September 30, having 17.6% exposure to the stock in its 13F portfolio (and 23% exposure to both classes of the company’s shares).
Alphabet Inc. shares haven’t been spared during the tech market rout this year, as investors worry about the near-term fate of the company’s monolithic advertising revenue in a recessionary environment. While 2023 could be rougher on that front, Alphabet has done just fine during the current year’s challenges, with ad revenue rising by 12% in Q3 to $165 billion. Google Cloud is also growing at a 40% rate and should bring some added and sustained clout to the company’s already stellar free cash flow generation in the years to come.
Mayar Capital laid out some of the reasons why Alphabet Inc. dominant search engine is so valuable in the fund’s Q3 2022 investor letter:
“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?
“Google it!”
This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.
Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to’ something. Second the reason Biden’s advice was met with such opprobrium was because Googling something has become almost second nature to us now.
These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.
Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate’ is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate’ as well as that from its other properties such as Mail, Maps, and so on, totaled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…” (Click here to see the full text)
1. Constellation Energy Corporation (NASDAQ:CEG)
Value of Appaloosa Management‘s 13F Position: $219 Million
Number of Hedge Fund Shareholders: 54
Constellation Energy Corporation (NASDAQ:CEG) is David Tepper’s top stock pick as of September 30 despite him trimming the size of his CEG position by 3% during Q3, which left him with 2.63 million shares. CEG shares soared by 45% during Q3, which boosted the value of Tepper’s holding by more than $74 million. Other funds that profited handsomely from their CEG holdings during Q3 included John Smith Clark’s Southpoint Capital Advisors and William B. Gray’s Orbis Investment Management.
Tepper first built a stake in Constellation Energy Corporation in Q2, one quarter after the company was spun off from Exelon Corporation (NASDAQ:EXC). The market is clearly enamored with the spun-off company’s long-term growth potential in light of the Inflation Reduction Act (IRA), as CEG shares have gained 125% this year despite the company posting modest results in Q3.
The company swung to a loss of $188 million during the quarter compared to a $607 million profit a year prior, and cut the top end of its revenue guidance for the year to $2.65 billion from $2.75 billion. Constellation stands to benefit tremendously from the IRA given its strong foothold in the U.S. nuclear power generation space. Among other things, the IRA will provide lucrative inflation-adjusted tax credits to help fuel the company’s operations and growth.
ClearBridge Investments believes the market is starting to recognize the potential for consolidation in the nuclear sector, which should also benefit Constellation Energy Corporation, as the fund discussed in it Q3 2022 investor letter:
“U.S. electric utilities dominated top contributors in the quarter, with Constellation Energy Corporation, PG&E (PCG) and NextEra Energy (NEE) at the top of the list. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S. Shares are performing well as the market is beginning to understand the potential for consolidation in the nuclear sector, where there is also potential upside from hydrogen.”
For more of the latest stock picks worth considering for your portfolio, check out the 10 Best Biotech Stocks To Buy and the 11 Best Covid Stocks To Invest In.
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This article is originally published at Insider Monkey.
