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David Tepper’s 80% Portfolio Turnover Includes New Buys QQQ, Citigroup, Bank of America
Posted by: Holly LaFon (IP Logged)
Date: May 15, 2012 03:26PM
David Tepper’s recent moves have been dramatic. In the third quarter, he sold more stocks than he bought, reducing his portfolio to one-third of what it was six months prior. He did not have portfolio positioning like that since the third quarter of 2008, an example of his accurate market timing. In the first quarter of 2012, he came back headlong into the markets, buying 25 new stocks for a quarter-over-quarter turnover of 80%.
His largest new buy in the first quarter was Nasdaq-100 Shrs (QQQ), which now comprises 31.4% of his portfolio, along with Citigroup Inc. (C), Google Inc. (GOOG), and a large stake in his new eighth-largest holding, Bank of America (BAC).
Tepper is a distressed debt specialist and the founder of Appaloosa Management, which trounced the S&P 185.1% to 12.2% from 2006 to 2010. In 2011, Tepper’s fund was down 5%.
David Tepper bought 18,854,218 shares of the Nasdaq 100 Index (QQQ) for an average price of $63. The new holding accounts for 31.4% of his portfolio, his largest by far. He had bought 1.5 million shares of the index previous in the fourth quarter of 2007 at an average price of $52, and sold in the first quarter of 2008 at an average price of $44.50.
The Nasdaq 100 Index is composed of the 100 largest, most actively traded U.S. companies on the Nasdaq index, which includes companies representing a range of industries except for the financial industry. In the last year the index advanced 9.5%.
Citigroup Inc. (C) is David Tepper’s second largest new buy of the quarter. He purchased 6,094,305 shares at an average price of $33, making it 5.5% of his portfolio.
Tepper made large sum of money on Citigroup during the financial crisis. He bought bonds of the bank at 19 cents in 2009 on the belief that the government would not allow banks to fail and made billions as the stocks recovered.
In 2011, the stock was one of his top five holdings, but he sold out in the fourth quarter at an average of $28 per share. Already in 2012, the stock rose to nearly $39 per share, but has since fallen to open at $28 per share on Tuesday.
Citigroup returned to profitability in 2010, earning $10.7 billion, and saw earnings increase to $11.2 billion in 2011 as its consumer- and services-related businesses performed well. Revenue declined from $111.5 billion to $102.6 billion, while it increased its revenue from international consumer banking by 5%, opening three million new accounts and increasing average loans and deposits by $12 billion and $9 billion, respectively.
For the first quarter of 2012, Citigroup reported net income of $2.9 billion, almost flat year over year, and revenue of $19.4 billion, down from $19.7 billion the previous year. The bank saw growth across all three of its core businesses, with Global Consumer Banking, its largest, producing solid growth in revenues, earnings, loans and deposits.
Tepper bought 162,137 of next largest new holding Google (GOOG) at an average of $616. He has done well at telling when shares of the company would go up in the past. In the first quarter of 2008 he bought 141 shares at approximately $519 per share and sold most of the holding at approximately $542. In the second quarter of 2011, he bought 90,000 shares at approximately $513 and sold out in the next two quarters at about $551 and $592 per share.
Google has a market cap of $197.31 billion; its shares were traded at around $610.75 with a P/E ratio of 18.4 and P/S ratio of 5.2. Google had an annual average earnings growth of 51.9% over the past 10 years. GuruFocus rated Google the business predictability rank of 2.5-star.
In 2011, Google’s cash flow jumped to a record $11.1 billion from $7.1 billion in 2010. EBITDA as well jumped to a record $13.6 billion from $11.8 billion in 2010, with cash of approximately $50.8 billion on its balance sheet.
The company’s results have ballooned as it makes enormous bets on products like Android, Chrome and YouTube. Google also announced on Dec. 31, 2011, plans to creat ea new class of non-voting capital stock which it would list on NASDAQ. Shares will be distributed the form of a stock dividend to existing stockholders, with owners receiving one new share of non-voting stock for every share they own.
Bank of America (BAC), like Citi, is another financial on which David Tepper made outsized profits. He bought 47,550,000 shares at an average price of $7 in the first quarter of 2009, and gradually sold in subsequent quarters as the price reached more than $16. He eliminated his remaining 10,000 shares in the third quarter of 2012 at an average price of $8.
After its price collapsed nearly 57% in 2011, he was able to acquire 7,456,408 shares at an average price of $8 in the first quarter of 2012, near his financial crisis-level price.
In the first quarter, Bank of America’s net income fell to $653 million on revenue of $22.5 billion, compared to net income of $2 billion on revenue of $27.1 billion in the year-ago quarter. It was its second straight quarter of earnings decline for the bank. Its return on equity also increased sequentially to 11.05% from 9.31%, but declined year over year from 15.41%.
Tepper rarely gives interviews, but he briefly mentioned his view on Bank of America on CNBC in January 2011 when asked what sector looked like it had greatest investment opportunity for that year: “I wouldn’t say the banking sector is such. Like PNC is so well run, and has had such stable management for so long, that we hate the company because there’s nothing screwed up about it for us to invest in. It’s just a great company. But there are banks that have had different issues that are interesting, that we still own, have owned, that are coming back, so to speak. And people know what they are, Bank of America, Citicorp and others. So some of those stocks are still kind of interesting,” he said.
See more of David Tepper’s latest buys and sells in his updated first-quarter portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of David Tepper.
Guru Discussed: David Tepper: Current Portfolio, Stock Picks
Stocks Discussed: QQQ, GOOG, BAC, C,