In this article, we examined David Tepper’s portfolio management strategy and approach to investing in stocks. We also reviewed 10 stocks David Tepper’s Appaloosa Management sold before entering 2022.
Appaloosa Management LP‘s founder David Tepper has an impressive record of outperforming markets over the past three decades. Between 1993 and 2019, his hedge fund returned 25%, and its assets under management topped $20 billion in 2014. He specializes in distressed debt and likes to buy when others fear. For instance, he has made huge profits for Goldman Sachs by buying underlying bonds of the financial institutions after the 1987 market crash. In 2001, his firm also earned a massive 61% return by investing in distressed bonds.
In the wake of the subprime mortgage crisis in 2008, Tepper invested in banking stocks and debt securities and earned over $7 billion in profits for Appaloosa. He had invested about $2 billion in commercial mortgage-backed securities and bought stakes in banking stocks such as Washington Mutual and Wachovia, Bank of America Corporation (NYSE:BAC), and Citigroup Inc. (NYSE:C).
Unlike Warren Buffett, who likes to hold stakes for a long time, David Tepper invests across growth and value stocks according to broader market conditions. As an example, his firm initiated positions in companies such as Twitter, Inc. (NYSE:TWTR) and QUALCOMM Incorporated (NASDAQ:QCOM) at the beginning of 2020. The firm sold that stake in the December quarter of 2021 to take profits. Shares of Twitter, Inc. (NYSE:TWTR) and QUALCOMM Incorporated (NASDAQ:QCOM) surged sharply in the past two years.
In addition to these two stocks, Appaloosa Management also dumped stakes in Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), Walmart Inc. (NYSE:WMT), Alibaba Group Holding Limited (NYSE:BABA), and HCA Healthcare, Inc. (NYSE:HCA).
David Tepper of Appaloosa Management
Our Methodology:
We made use of Appaloosa Management’s 13F portfolio for the fourth quarter for this analysis. The following is the list of the 10 stocks David Tepper’s Appaloosa Management sold before entering 2022.
David Tepper’s Appaloosa Management Sold These 10 Stocks Before Entering 2022
Visa Inc. (NYSE:V)
Number of hedge fund holders: 142
David Tepper’s investment firm took full advantage of the significant gain in Visa Inc. share price over the past two years. In the second quarter of 2020, when Visa Inc. was hit by pandemic-related restrictions, Appaloosa bought a stake in the company and closed it out in the December quarter of 2021.
Despite David Tepper’s exit strategy, elite funds were more bullish about Visa Inc. as of December 2021 compared to Twitter, Inc. and QUALCOMM Incorporated. Of the 924 hedge funds tracked by Insider Monkey, Visa Inc. was in 142 portfolios. It was also ranked among the top 30 most popular stocks among hedge funds.
In the fourth quarter investor letter, Weitz Investment Management, an investment management firm, mentioned a few stocks including Visa Inc.. Here is what Weitz Investment Management stated about Visa Inc.:
“Reports to investors usually focus on the winners that prove the worthiness of the managers. It’s possible that we’ve been guilty of that on occasion, despite our best efforts to accurately convey what has worked and what hasn’t. This time, though, we are going to celebrate the great businesses we own that “went nowhere” in 2021. In a generally expensive market-facing potentially strong headwinds in 2022, we find it very encouraging to own a number of proven winners whose stocks have been “resting” for the last year or so. They will not necessarily save us from markdowns during broad-based corrections, but they are companies that we believe can survive and grow business value through almost anything. They are the kinds of businesses that allow us to sleep well at night and not be tempted to sell at the wrong time. Here are some examples:
Established payments companies have been out of favor recently. Cross-border payments have been depressed with COVID disrupting international travel. These types of payments are particularly lucrative for Visa Inc. and their absence has impacted earnings. Further, we believe investors have overestimated the negative competitive impact of new fintech companies that have emerged over the past few years. Many of these “disrupters” depend on the Visa “rails” over which electronic payments travel, and these wily incumbents have a way of acquiring, copying or otherwise competing with upstarts.”
9. Mastercard Incorporated (NYSE:MA)
Number of hedge fund holders: 144
Tepper’s Appaloosa Management also dumped its stake in Mastercard Incorporated during the December quarter. The firm first initiated a position in Mastercard Incorporated in the second quarter of 2020 by purchasing more than 545,000 shares. Like Visa Inc., the stock price of Mastercard Incorporated surged in the second half of 2020 and extended that momentum into the first half of 2021.
As of December 2021, the payment technology company was in 144 hedge funds’ portfolios compared to 146 in the prior quarter, according to data tracked by Insider Monkey. Despite a small decline in hedge funds interest, Mastercard Incorporated was among the top 30 popular stocks among the hedge funds.
In the fourth quarter investor letter, VGI Partners, an investment management firm, highlighted a few stocks including Mastercard Incorporated. Here is what VGI Partners stated:
“Mastercard Incorporated has been a core constituent of the VGI Partners global strategy since 2009. Mastercard is a global payments processor and in an effective duopoly with Visa. The industry benefits from a strong secular trend toward electronic payments over cash and cheques and the COVID pandemic has accelerated this shift.
Mastercard Incorporated’s share price increased +1% in calendar 2021 despite more than 25% earnings growth. This was due to Mastercard’s market multiple de-rating due to short-term concerns about cross-border volumes and long-term concerns about disintermediation from fintechs such as PayPal and Square (see the chart below showing Mastercard’s EV/EBITDA multiple during 2021 de-rating from >30x to ~26x).
Whilst the full recovery in cross-border travel has been delayed by the onset of Delta and Omicron, we believe there is significant pent-up demand for travel and that cross-border transaction volumes can exceed 2019 levels by 2023.
Interchange fees have long been a point of contention between the payment processors and merchants so the news that Amazon UK would no longer accept Visa credit cards rekindled fears that there would be a race to the bottom in merchant discount rates. Amazon and Visa have since come to a resolution and we think it is highly unlikely that other merchants will take a similar step. Nevertheless, we are closely monitoring the situation for further developments…” (Click here to see the full text)
8. Walmart Inc. (NYSE:WMT)
Number of hedge fund holders: 63
Walmart Inc. is among the top 10 stocks David Tepper’s Appaloosa Management sold before entering 2022. The firm held a position in Walmart Inc. for a short time. The position was initiated during the third quarter of 2021 and was sold out in the December quarter.
Unlike tech growth stocks such as Twitter, Inc. and QUALCOMM Incorporated, Walmart Inc. is a retail company. Ken Fisher’s Fisher Asset Management and Michael Larson’s Bill & Melinda Gates Foundation Trust are among the leading stakeholders in the company. As of the end of December, 63 elite funds were bullish about the company compared to 71 positions in the previous quarter.
7. Alibaba Group Holding Limited (NYSE:BABA)
Number of hedge fund holders: 96
Alibaba Group Holding Limited is no more a member of David Tepper’s portfolio, according to the latest filings. The shares of Alibaba Group Holding Limited plummeted around 50% in the last twelve months due to regulatory issues.
In the fourth quarter investor letter, Oakmark Funds, an investment management firm, highlighted reasons for the poor performance of Alibaba Group Holding Limited. Here is what Oakmark Funds stated:
“Alibaba Group (China) was a top detractor for the quarter due to increased regulation from the Chinese government on local technology businesses, which continued to pressure the company’s share price. In addition, investors were disappointed with second-quarter earnings reported in November, marked by decelerating growth and lowered revenue guidance for the full year. Alibaba Group Holding Limited’s slowing growth was attributable to decreased retail spending in China, increased e-commerce competition and the company’s reinvestments into its merchant base. Although the company currently faces several headwinds, we believe Alibaba Group Holding Limited is an important driver of innovation in China, and several of its businesses have yet to fully scale. Finally, we believe the shares are undervalued given the quality of the company’s assets and its technological know-how.”
6. HCA Healthcare, Inc. (NYSE:HCA)
Number of Hedge Fund Holders: 66
With a share price gain of more than 40% in 2021, HCA Healthcare, Inc. was ranked among the top-performing health care companies. David Tepper’s Appaloosa Management dumped its position in HCA Healthcare, Inc. during the December quarter. The firm had bought a stake in the company in early 2020. HCA Healthcare, Inc. is an American operator of healthcare facilities.
As of the end of December, 66 hedge funds were bullish about HCA Healthcare, Inc., down from 72 in the previous quarter. Harris Associates and Arrowstreet Capital were among the leading stakeholders in the company.
5. Twitter, Inc. (NYSE:TWTR)
Number of hedge fund holders: 83
Shares of Twitter, Inc. have been under pressure over the last twelve months amid slower than expected growth. The company’s fourth-quarter revenue of $1.57 billion missed analysts’ expectations by $6 million while earnings per share missed the target by $0.01 per share. According to the latest 13F filings, Appaloosa Management sold its entire stake in the company. Moreover, several other hedge funds also dumped their position in the social media platform. It was in 83 hedge funds’ portfolios as of December compared to 94 positions in the previous quarter.
4. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of hedge fund holders: 75
Tepper’s hedge fund also closed out its stake in QUALCOMM Incorporated during the December quarter after holding a position for the past four quarters. QUALCOMM is a semiconductor company and its shares remained under pressure in 2021 due to supply chain dynamics. The San Diego-based chipmaker reported first-quarter earnings per share of $3.23 on $10.7 billion in revenue. Despite strong first-quarter results, some market analysts are showing concerns over seasonal decline for the core chipset business in the second quarter.
As of December, 75 hedge funds were bullish about the company compared to 70 in the previous quarter. Alkeon Capital Management and Matrix Capital Management were among the leading stakeholders in the company.
3. Paysafe Limited (NYSE:PSFE)
Number of hedge fund holders: 32
Shares of Paysafe Limited (NYSE:PSFE) have been sliding amid easing social distancing policies and expectations for slower revenue growth. Paysafe provides digital commerce solutions to online businesses. The commerce fintech expects fiscal 2021 revenue in the range of $1.47 billion-$1.48 billion compared to previous estimates of $1.53 billion-$1.55 billion.
It is among the stocks David Tepper’s Appaloosa Management sold before entering 2022. The firm sold its stake in the company during the December quarter. The number of long hedge fund positions also fell to 32 as of December compared to 42 positions in the previous quarter, according to data tracked by Insider Monkey.
2. Beachbody Company, Inc. (NYSE:BODY)
Number of hedge fund holders: 14
Beachbody Company, Inc. (NYSE:BODY) lost almost 80% of its value in the past twelve months. The selloff in its share price is attributed to easing social distancing policies. Beachbody is a worldwide leading digital fitness and nutrition subscription company. David Tepper also sold its stake in the company during the December quarter. Moreover, market analysts have lowered their rating for the company amid near-term challenges. For instance, Guggenheim and Baird dropped their rating on Beachbody to Neutral from Buy. Out of the 924 hedge funds tracked by Insider Monkey, Beachbody was in 14 portfolios as of December.
1. Ovintiv Inc. (NYSE:OVV)
Number of hedge fund holders: 44
Shares of Ovintiv Inc. (NYSE:OVV) has been rallying at a robust pace since the beginning of 2021 amid growth in commodity prices. It is a hydrocarbon exploration and production company. Tepper sold its stake in Ovintiv in the December quarter just after initiating a position in the previous quarter.
In the fourth quarter investor letter, Miller Value Partners, an investment management firm, mentioned a few stocks including Ovintiv Inc.. Here is what Miller Value Partners stated:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
You can also take a look at the Billionaire Ken Griffin Is Loading Up on These 10 Stocks and 10 Best Pharmaceutical Stocks to Buy in 2022.
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