Last month, Appaloosa Management filed its 13F with the SEC for the third quarter of 2012. Appaloosa was founded by David Tepper, who has since become a billionaire due to his success as an investor even as the hedge fund has swelled to $16 billion in assets under management (check out Tepper’s stock picks). We decided to compare the hedge fund’s stock holdings to those reported by Jim Cramer’s charitable trust; reviewing the positions held by this trust allows investors insight into what the former hedge fund manager likes. Here are the five largest holdings by market value in Appaloosa’s most recent 13F that Cramer’s charitable trust also disclosed owning:
Tepper’s top single stock pick (he had a large position in an ETF tracking the NASDAQ) was Apple Inc. (NASDAQ:AAPL) with a position of about 520,000 shares. Apple had in fact led our list of the most popular stocks among hedge funds (see the rest of the top ten) with 146 hedge funds and other notable investors in our database of 13F filings owning the stock. A stock at 12 times trailing earnings generally doesn’t need much growth to prove undervalued; with Apple at that price, and with a strong position in several growing markets, we agree that it is a good value.
Hedge funds’ top financial stock (find more financial stocks hedge funds love)– and third most popular pick overall- was another one shared between Tepper’s and Cramer’s trust’s portfolios: American International Group, Inc. (NYSE:AIG). AIG is another value play, from our perspective: its P/B ratio is 0.5, meaning that it has quite a bit of upside if its assets turn out to be worth slightly less than their current book values. It also trades at 10 times forward earnings estimates. We think that it’s a good stock to buy.
Appaloosa increased its stake in Broadcom Corporation (NASDAQ:BRCM) by 43% between July and September to a total of 3.6 million shares, while Cramer’s trust owned it as well. In the third quarter of the year, Broadcom reported a 19% decline in earnings though revenue was up moderately. The stock carries a trailing P/E of 26, but analyst expectations are that the company will recover in 2013 and so the forward P/E is 11. Billionaire Ken Griffin’s Citadel Investment Group was also buying Broadcom during the quarter (research more stocks Griffin liked). We would avoid the stock for now, given its recent performance and its valuation.
Both the trust and the hedge fund also owned JPMorgan Chase & Co. (NYSE:JPM). The large bank looks like yet another good value stock as it trades at a discount to book value (P/B ratio of 0.9) and low earnings multiples (trailing P/E of 9). Unlike some other large banks, JPMorgan Chase actually reported higher revenue and net income in the third quarter compared to the same period in 2011. Fisher Asset Management, managed by billionaire Ken Fisher, more than doubled its own holdings of JPMorgan Chase last quarter (see more stocks Fisher was buying).
EMC Corporation (NYSE:EMC), the $54 billion market cap data storage company, was another common holding between Appaloosa and Cramer’s charitable trust. As with Broadcom, the trailing earnings multiple looks a bit high here- at 21- and last quarter growth was only modest versus a year earlier. Consensus for 2013 implies a forward P/E of 13, which would be more attractive from a value perspective, but we don’t want to take those projections at face value and so we’d avoid the stock, particularly given the low multiples of some other data storage companies. EMC had joined Apple as one of the ten most popular tech stocks among hedge funds.
