David Tepper Buys and Sells Rising Stocks
David Alan Tepper is an American value investor, successful hedge fund manager, and the founder of Appaloosa Management. His investment specialty is in distressed companies.
Tepper was born on September 11, 1957 and raised in Pittsburgh, Pennsylvania. He attended the University of Pittsburgh that he paid his way through by working at a library. Tepper graduated with honors receiving his Bachelor of Arts degree in Economics. After graduation he entered the finance industry working for Equibank as a Credit Analyst in the Treasury department. Then, he entered Carnegie Mellon in 1980 for his MBA, then known as an MSIA. After earning his MBA in 1982, Tepper accepted a position in the treasury department of Republic Steel in Ohio. In 1984, he was recruited to Keystone Mutual Funds (now part of Evergreen Funds) in Boston, and in 1985, Tepper was recruited by Goldman Sachs, which was forming its high yield group. He joined the firm in New York City as a credit analyst. Within six months, Tepper became the head trader on the high-yield desk at Goldman where he worked for eight years. His primary focus was bankruptcies and special situations. He left Goldman in December 1992 and started Appaloosa Management in early 1993.
In 2001 he generated a 61% return by focusing on distressed bonds, and in the fourth quarter of 2005 he pursued what he saw as better opportunities in Standard & Poor's 500 stocks. He makes significant gains year after year by “investing in the diciest of companies,” such as MCI and Mirant. Investments in Conseco and Marconi also led to huge profits for the company’s hedge funds while Tepper “keeps the market on edge.”
In 2009, Tepper's hedge-fund firm earned about $7 billion by buying distressed financial stocks (including acquiring Bank of America common stock at $3 per share) in February and March of that year and profiting from recovery of those stocks, with $4 billion of these profits going to Tepper's personal wealth. In March 2010, the New York Times reported that Tepper's success made him the top-earning hedge fund manager in the world in 2009, and in 2010 he was ranked by Forbes as the 258th richest person in the world. Over his 17-year hedge fund career, Tepper returned on average roughly 40 percent annually for himself and 30 percent annually for his investors.
At the peak in 2009, 30 percent of Tepper’s fund was in securities of financial companies. In early 2009, he bought American International Group's debt for 10 cents on the dollar. After receiving government assistance, prospects for the company looked much brighter and Tepper's investment soared to 61 cents on the dollar by December 2009. The same year he also purchased $2 billion in commercial mortgage-backed securities. Peter Cooper Village & Stuyvesant Town and 666 Fifth Ave. were two of the commercial properties. Then the government did not nationalize these banks and their securities soared, scoring Tepper one of the biggest annual paydays in hedge fund history.
Late in 2010, Tepper turned bullish on U.S. equities because the Federal Reserve signaled it was willing to conduct a second round of quantitative easing. Early in 2011, he remained bullish on U.S. stocks and the economy. In particular, he was upbeat about Dean Foods and Micron Tech. Last year, Tepper’s flagship Appaloosa fund returned an eye-popping 132.7%, net of fees. Through July of this year, the fund is up almost 42% on a net trailing annualized basis, according to performance documents from an investor.
Stocks That David Tepper Keeps Buying
No. 1: Hewlett-Packard Co. (HPQ, Financial), Weightings: 6.16% - 6,330,726 Shares
Hewlett-Packard is one of the global providers of computing and imaging solutions and services for business and home. Hewlett-Packard Co. has a market cap of $78.83 billion; its shares were traded at around $36.43 with a P/E ratio of 7.2 and P/S ratio of 0.6. The dividend yield of Hewlett-Packard Co. stocks is 1.3%, and it had an annual average earnings growth of 22.5% over the past five years.
Even after the recent 10% run in HPQ, shares are still incredibly cheap on any measure of cash flow or earnings. Many people fear that the tablet computer will eat up the laptop market, but HPQ has now entered the tablet market that is growing much faster than laptops; in the end. HPQ has repurchased over 10% of its market cap over the past year, which is a clear sign that the board and management think the stock is cheap. At 9.11X trailing earnings, there appears to be significantly lower risk in HP shares than in most of the technology stocks out there, partly because this high tech name is viewed as a printer company while its laptop and cloud services businesses are actually in growth mode. HPQ's 2008 revenue is $104 billion and the 2010 revenue of $114 billion, so HPQ was profitable during the financial crisis. HPQ focuses on the PC, printing, and services sectors with estimated revenue of $129 billion in 2011.
Stock peaked at $53.48 on November 6, 2007 and now trades for about $36.50. HPQ actually briefly reached above that level in April 2010, but has since plunged again. The stock is currently down 32% from the 2007 highs. Also, the end of first quarter return is -11% for this stock.
HP’s new TouchPad released was in a recent review by Engadget.com, the tablet “fails to live up to one's expectations” for a number of reasons: It’s bulky, lacks apps, has disappointing performance, and unimpressive software. The HP TouchPad simply cannot compete with Apple’s iPad 2.
David Tepper owns 6,330,726 shares of HPQ, valued as $259 million as of March 31, 2011, which accounts for 6.16% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 56.94%, again in the March 31, 2011 quarter by 8.34%. He started to buy this stock in late 2010 as the stock was having downward swing in stock price and since then, the price and Tepper’s position both increased ever since.
No. 2: Goodyear Tire & Rubber Co. (GT, Financial), Weightings: 5.42% - 15,248,003 Shares
Goodyear is one of the world's largest tire companies. Goodyear Tire & Rubber Co. has a market cap of $4.21 billion; its shares were traded at around $17.23 with a P/E ratio of 22.9 and P/S ratio of 0.2. Goodyear Tire & Rubber Co. had an annual average earnings growth of 2.3% over the past 10 years. Car tire makers like Michelin, Continental and Goodyear are doing very well right now on increased global car production as well as high demand for trucks especially in emerging markets.
Including manufactures of tires and rubber-related chemicals for transportation and industrial markets, taken together, investors are bullish on GT, and they added a net $122 million to their $160 million prior quarter position. Six increased their position, and none reduced it. The investors with the largest additions to their position include Appaloosa Management LP ($77 million), SAC Capital Advisors LP ($21 million), Zweig-DiMenna Associates ($12 million), Balyasny Asset Management LLC ($9 million) and Keeley Asset Management Corp ($2 million). GT trades at a forward P/E of 8, about mid-range based on its historic P/E range. Analyst targets are in the low-$20s; and of the eleven analysts covering the stock, eight rate it a buy/strong buy, two a hold, and one rates it at a sell.
Earnings per share growth estimate for the next 5 years at 26.35%. Shares shorted have decreased from 11.17 million to 10.63 million month-over-month, a change representing 0.24% of the company's 227.97 million shares float.
The company posted a threefold increase in profit to $127 million or 51 cents per share in the first quarter of 2011 from $41 million or 18 cents per share in the same quarter of 2010. Rising commodities prices and tight supply are giving tire makers an opportunity to push through larger and quicker price increases than ever before. Dealers, Distributors and Automakers increasingly express concerns about tire shortages (dealer fill rates for certain brands have recently declined to 45%) and as tire manufacturers implement frequent and increasingly large price increases. The end of first quarter return is 12% for this stock.
David Tepper’s bullish bets outperformed index funds are mainly because of his increased positions in Goodyear Tire, Macy’s, and Dean Foods. These were among his largest bullish positions and each of these stocks returned more than 20% during second quarter. David Tepper was the largest holder of GT at the end of first quarter.
David Tepper owns 15,248,003 shares of GT, valued as $228 million as of Mar. 31, 2011, which accounts for 5.42% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 227.45%, again in the March 31, 2011 quarter by 51.3%. He started to buy this stock in mid-2006 and has a complex trading pattern. Tepper has sold out twice and has the largest position right now on this stock than he ever had. His recent drastic increase in his position on this stock is simultaneous with a slight price increase, so it looks like he has much confidence in bullish behavior of this stock that he has not had since 2006.
No. 3: International Paper Co. (IP, Financial), Weightings: 4.11% - 5,738,512 Shares
International Paper Co. is a global paper and forest products company that is complemented by an extensive distribution system. It has a market cap of $13.23 billion; its shares were traded at around $30.26 with a P/E ratio of 11.1 and P/S ratio of 0.5. The dividend yield of International Paper Co. stocks is 3.4%, and it had an annual average earnings growth of 3.3% over the past 10 years.Earnings increased by 278.78% this quarter. SMA20 is 7.14%, whereas SMA200 is 12.98%. P/S is 0.52. Target price is 36.46, implying an about 20% upside potential. RBC and Credit Suisse suggested an outperform rating for IP, while Longbow, Deutsche Bank, and Argus recommend buying.
The momentum is truly delightful and can return serious profits. This is a risky stock that is significantly more volatile than the overall market (beta = 2.19). Debts are lower for the last three years, and the company pays a 3.49% dividend. Analysts estimate an annualized EPS growth of 4.97% for the next five years, which is quite reasonable given the 1.16% EPS growth over the last five years. The stock has gained 33.3% over the last year, but so far there is 0% return at the end of first quarter. IP will announce its second-quarter earnings on July 28, before the market opens.
David Tepper owns 5,738,512 shares of IP, valued as $173 million as of Mar. 31, 2011, which accounts for 4.11% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 178.57%, again in the March 31, 2011 quarter by 6.28%. He started to buy this stock in mid to late 2010, and then almost tripled his holdings by the end of 2010. Now, he has just increased his holdings by just slightly while the stock price has been constantly increasing from $22.6 to $28 during this time. So it seems Tepper had huge confidence in this stock in 2010 but has reached his limits.
No. 4: Macy's Inc. (M, Financial), Weightings: 3.87% - 6,712,625 Shares
Macy’s Inc., together with its subsidiaries, operates department stores and Internet Web sites in the United States. Macy’s Inc. has a market cap of $12.95 billion; its shares were traded at around $30.42 with a P/E ratio of 13.2 and P/S ratio of 0.5. The dividend yield of Macy’s Inc. stocks is 1.3%.
The company is trading significantly below analysts' estimates. M has a median price target of $35 by 14 brokers and a high target of $45. The last up/downgrade activity was on June 9, 2011, when Barclays Capital upgraded the company from Equal Weight to Overweight.
Macy’s reported June sales growth of 7.5%. To put this into context Macy’s easily beat the Wall Street consensus for June same-store sales of 4.9%. Further, for the second time in two months, Macy’s increased both its second quarter and full year sales guidance. For the second quarter Macy’s now expects same-store sales to increase 6% and for the year the Company now expects 4.8%. Macy’s initial guidance had been 4% for Q2 and 4.3% for the year. In the May sales release the company increased this outlook to 5% for Q2 and 4.5% for the year only to again increase the outlook after releasing June sales results. This company is executing on all cylinders. The end of first quarter return was 21%.
Macy's continued to report robust sales growth via its web business (+45.0% versus last year). This speaks to the Omnichannel strategy and suggests that Macy’s is able to compete with online retailers such as Amazon.com. Macy’s continues to be undervalued. The company is executing flawlessly and will continue to deleverage the balance sheet as debt comes due accruing more value to equity holders. With the increased dividend, recent upgrade at S&P to investment grade, and the potential for further capital return to shareholders makes M a good buy.
David Tepper owns 6,712,625 shares of M, valued as $163 million as of Mar. 31, 2011, which accounts for 3.87% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 17.99%, again in the March 31, 2011 quarter by 28.5%. He started to buy this stock as of mid-2010 and has increased his position overall steadily just as the stock price increased steadily since the beginning of 2009. There was a slight dip in stock price in late 2010 in which Tepper reacted in selling 8.5% of his position, but Tepper decided to increase his position after a similar dip in price last quarter.
No. 5: US Airways Group Inc. (LCC, Financial), Weightings: 2.57% - 12,447,139 Shares
US Airways Group, Inc. is an air carrier that transports passengers, property, and mail. The Company provides regularly scheduled service at airports in the United States, Canada, Europe, the Caribbean, and Latin America. Us Airways Group Inc. has a market cap of $1.33 billion; its shares were traded at around $8.21 with a P/E ratio of 3.9 and P/S ratio of 0.1.
LCC was acquired by America West Airlines in 2005, adding legacy international routes to a wide range of domestic US destinations, not just the northeast. This acquisition gives LCC a broad reach in the industry.
LCC booked stronger traffic in June from the year-earlier period and predicted total capacity in 2011 will rise about 1% as more customers seek flights. Mainline revenue passenger miles for the four-week period climbed 2.5% to $5.7 billion from June 2010, while mainline and express passenger revenue climbed a combined 6%. Capacity was $6.6 billion available seat miles, up 2.3% from a year ago, and load factor hit an all-time high in May of 87.1%, up slightly higher from last June. Also, mainline revenues were driven in its domestic and Atlantic markets, partially offset by a 5.2% decline in its smallest Latin market. For the remainder of 2011, U.S. LCC predicts mainline revenues will climb about 1.5%, with domestic capacity up slightly and international up about 3%. The end of first quarter return was 2%.
LCC trades at a forward P/E of 4-5, at the bottom of its historic P/E range. Analyst targets are in the mid-teens, more than 60% above current prices in the $9 range; and of the fourteen analysts covering the stock according to Seeking Alpha, seven rate it a buy/strong buy, seven a hold, and none rate it at underperform/sell.
David Tepper owns 12,447,139 shares of LCC, valued as $108 million as of Mar. 31, 2011, which accounts for 2.57% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 27.91%, again in the March 31, 2011 quarter by 329%. He started to buy this stock near the end of 2009 and held relatively the same position until last quarter during which the stock price went up from $3.9 to $10.6. During last quarter, the stock price for the quarter dropped for first time since mid-2009 to $9.6, yet Tepper drastically increased his position from around 2.9 million to 12.45 million shares.
No. 6: Navistar International (NAV, Financial), Weightings: 1.14% - 691,008 Shares
Navistar International is a holding company and its principal operating subsidiary is Navistar Int'l Transportation Corp. It makes trucks and military vehicles and is based in Illinois. Navistar International has a market cap of $4.1 billion; its shares were traded at around $56.71 with a P/E ratio of 15.8 and P/S ratio of 0.3. Navistar International had an annual average earnings growth of 2.5% over the past 5 years.
NAV is trading around $58.35 between $40.58 and $71.49 in the last 52 weeks. The 50 day moving average is $62.47 and the 200 day moving average is $58.96. NAV is estimated to earn $5.50 per share this year and $7.35 for next year.
NAV recently traded for around $68, but lately these shares are trading much lower due to concerns over the economy. However, the stock has bounced lately and the concerns over another major recession appear to be overblown. Insiders of NAV have been very active over the last two weeks with four directors picking up shares. The largest purchases have been by Mr. Clariond who picked up 71,000 shares for a total of $3.83 million. The end of first quarter return was -19%.
David Tepper owns 691,008 shares of NAV, valued as $48 million as of Mar. 31, 2011, which accounts for 1.14% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 12.22%, again in the Mar. 31, 2011 quarter by 49.83%. He started to buy this stock late 2009 and generally followed the trend of the stock price as he increased and decreased his position since then. After his initial buy of this stock and seeing the price was going up, he instantly tripled his holdings by the start of 2010 and then went with the flow of the stock price as he sold almost half of his position mid-2010 when the stock price took a dip. Now Tepper is on an upswing just like the stock price.
Stocks That David Tepper Keeps Selling
No. 1: Fifth Third Bancorp (FITB, Financial), Weightings: 1.09% - 3,306,006 Shares
Fifth Third Bancorp is a registered financial holding company and a multi-bank holding company. Fifth Third Bancorp has a market cap of $11.54 billion; its shares were traded at around $12.56 with a P/E ratio of 15.5 and P/S ratio of 1.6. The dividend yield of Fifth Third Bancorp stocks is 2%.
FITB Trust Preferred Shares got an unwelcome surprise last week when the corporation used a little recognized provision in their trust agreement to call the shares at $25 plus accrued dividends. These trust preferred shares had an 'earliest call date' of 5/15/2013 and a maturity date of 5/15/2058. The coupon on these shares was 8-7/8%, meaning that in the scramble by investors to maximize yield the price was driven as high as $27 recently and the shares had been trading at $26.60 the day before the call was announced. Immediately after the call the shares dropped to the $25 area leaving investors with an instant 5% loss.
Huntington Bancshares Incorporated (HBAN) sells for under 12 times expected 2011 earnings of 58 cents and less than 10 times 2012's consensus of 68 cents. It has had significant insider buying recently and a high capital tier ratio for a regional bank. Its operating margin is significantly better than two of its key competitors, Fifth Third (FITB) and Keycorp (KEY).
The stock closed at $12.34 recently, falling $1.88 or 13.22% in the last 90 trading days. After a failed Midwest explanation into Florida at the wrong time, the company has gone back to basics, and still has a strong franchise in its core markets. Earlier this year, it paid back the last of its Federal crisis funding, and it increased its dividend.
David Tepper owns 3,306,006 shares of FITB, valued as $46 million as of Mar. 31, 2011, which accounts for 1.09% of his equity portfolio. David Tepper reduced his positions in the Dec. 31, 2010 quarter by 8.35%, again in the Mar. 31, 2011 quarter by 65.07%. He started to buy this stock at the beginning of 2009 when FITB was at its lowest point in many years. FITB was always about $40 until mid-2007 when the stock price started to go straight downward to $3.1 when Tepper first bought over 20 million shares. Since then, Tepper has been steadily selling this stock every quarter as the stock price steadily increased every quarter to today’s price of over $12.
No. 2: Yahoo! Inc. (YHOO, Financial), Weightings: 0.87% - 2,193,644 Shares
Yahoo! Inc. is a global Internet communications, commerce and media company that offers a comprehensive branded network of services. Yahoo! Inc. has a market cap of $20.34 billion; its shares were traded at around $15.61 with a P/E ratio of 20 and P/S ratio of 3.2.
During the current quarter, institutional investors have been net buyers of 45.4 million shares, which represents 3.85% of the company's 1.18B share float. TTM P/E at 18.20 vs. three-year average at 32.28. Last year diluted EPS at $0.90 vs. two years prior EPS at $0.29. MRQ total debt/total assets at 0.0093. The stock has lost 7.1% over the last year.
Things have taken a turn for the worse for Yahoo! as it continues to lose ground to competitors like Google. Its Internet search business has fallen way behind Google’s, and even Microsoft’s Bing has entered the picture. Despite this weakness, Yahoo’s real value is derived from its news and other articles. Yahoo! Sports remains the most visited sports site on the web, Yahoo! Finance is a major source of financial news, and the front page remains a popular visit for its news and interest stories.
The company has had issues with its holdings of China’s Alibaba (ALBCF.PK), although it could turn out to be a very valuable holding, and shareholders are calling for the CEO to be fired. Even though revenue has fallen the last few years, EPS has been on the rise and is expected to grow even more. Just a few weeks ago, Yahoo had a P/E of 17, just below Google’s P/E of 18.5. Its PEG was just over 1, compared to Google’s of .6. That is why stock prices has gotten somewhat cheap from all the bad press with Alibaba over its Alipay payment unit and especially with its CEO. Yahoo! is still a major player on the web (it is still No. 2 in online display ad revenue), and earnings are growing.
In a letter to investors, David Einhorn said the kerfuffle, which has hit Yahoo’s stock hard, “wasn’t what we signed up for.” Einhorn said in the letter that his fund had “a modest loss” in Yahoo, which sources said was about $20 million. Einhorn had bought less than .65 percent of Yahoo, or about 8.5 million shares in March, which he said was due to his feeling that the company was undervalued with regard to its Asian assets. Einhorn, at the time, even said “We would not be surprised if YHOO’s 40 percent stake in Alibaba Group alone was ultimately worth YHOO’s entire current market value.”
David Tepper owns 2,193,644 shares of YHOO, valued as $37 million as of Mar. 31, 2011, which accounts for 0.87% of his equity portfolio. David Tepper reduced his positions in the Dec. 31, 2010 quarter by 2.96%, again in the Mar. 31, 2011 quarter by 18.92%. He started to buy this stock early 2010 of over 3 million shares, but because the price has not changed since then, Tepper has been selling every quarter.
No. 3: Hartford Financial Svcs. (HIG, Financial), Weightings: 0.61% - 946,917 Shares
Hartford Financial Services is one of the nation's largest investment and insurance companies, offers a complete line of insurance and financial service products to customers all over the world. The company's Property and Casualty Commercial segment provides workers compensation, property, automobile, marine, livestock, liability, and umbrella coverages, as well as customized insurance products and risk management services, including professional liability, fidelity, surety, specialty casualty coverages, and third-party administrator services. Hartford Financial Svcs. has a market cap of $11.7 billion; its shares were traded at around $26.27 with a P/E ratio of 5.7 and P/S ratio of 0.5. The dividend yield of Hartford Financial Svcs. stocks is 1.5%.
HIG recently doubled its dividend payment to 10 cents per quarter. It still pays out less than 20% of its pre-crisis dividend payout. S&P predicts average annual earnings growth of 17% over the next three years. S&P has a price target of $34 on Hartford and FBR Capital just raised its price target to $35. These shares have a relative strength index of about 33 which indicates the shares are oversold. HIG shares have fallen with the markets and also due to concerns about policies they have in Japan. The 50 day moving average is $27.17 and the 200 day moving average is $25.77. Earnings estimates for HIG are $3.80 per share in 2011.
HIG goes for under 7 times this year’s estimated EPS and around 6.5 times 2012’s consensus. HIG has absolutely hammered earnings estimates the last three quarters. The stock now is in the bottom quarter of its five-year valuation range based on P/B, P/E and P/CF. It yields 1.6% after doubling its dividend payment recently. It still pays out less than 20% of its pre-crisis dividend payout. S&P predicts average annual earnings growth of 17% over the next three years.
Both Travelers Companies and Chubb Corporation recently hit all-time highs while Allstate and Hartford Financial Services are trading significantly below 2006/2007 highs even though the companies both compete in the property and casualty sectors as well. HIG even trades as low as 0.6x book value making the valuation argument a lot more compelling in this sector.
David Tepper owns 946,917 shares of HIG, valued as $26 million as of Mar. 31, 2011, which accounts for 0.61% of his equity portfolio. David Tepper reduced his positions in the Dec. 31, 2010 quarter by 14.1%, again in the Mar. 31, 2011 quarter by 27.55%. He started to buy this stock mid to late 2009 of almost 5 million shares and some more over the next year, but due to very limited stock price growth and eventual decline in mid-2010, Tepper sold about 5 million shares. Tepper has been selling the rest little by little since then even when the stock price has been increasing since the huge sell.
No. 4: Newcastle Investment Corp. (NCT, Financial), Weightings: 0.08% - 546,192 Shares
Newcastle Investment Corp invests in real estate securities and other real estate-related assets. Newcastle Investment Corp. has a market cap of $504.2 million; its shares were traded at around $6.36 with a P/E ratio of 0.7 and P/S ratio of 1.6. The dividend yield of Newcastle Investment Corp. stocks is 6.3%.
NCT has P/E ratio of 0.60, forward P/E of 1.37, PEG of 0.44, and dividend/yield of 0.40/7.2%. Real estate overall is still not performing, but in the Teflon northeast market where Newcastle is located that is not the case. Its mix of commercial and residential paper has performed well and the company has added to investments with an expected average return of 18% on its investments. Only $20 million of the portfolio remains on negative watch. The common dividend was also recently reinstated at 0.40 annually. Current yield was just declared a 10-cent quarterly dividend and 7.3% annualized.
Net Institutional purchases over the current quarter at 9.4M, representing 12.87% of the company's 73.04M share float. It's been a rough couple of days for the stock, losing 14.49% over a week.
With a P/FCF of 9.08, institutional ownership comprising 42.4% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 38%, NCT also exhibits additional positives, including an ultra-low PEG ratio (0.38) and positive year-on-year earnings growth. NCT is currently priced at about $5.29%
David Alan Tepper is an American value investor, successful hedge fund manager, and the founder of Appaloosa Management. His investment specialty is in distressed companies.
Tepper was born on September 11, 1957 and raised in Pittsburgh, Pennsylvania. He attended the University of Pittsburgh that he paid his way through by working at a library. Tepper graduated with honors receiving his Bachelor of Arts degree in Economics. After graduation he entered the finance industry working for Equibank as a Credit Analyst in the Treasury department. Then, he entered Carnegie Mellon in 1980 for his MBA, then known as an MSIA. After earning his MBA in 1982, Tepper accepted a position in the treasury department of Republic Steel in Ohio. In 1984, he was recruited to Keystone Mutual Funds (now part of Evergreen Funds) in Boston, and in 1985, Tepper was recruited by Goldman Sachs, which was forming its high yield group. He joined the firm in New York City as a credit analyst. Within six months, Tepper became the head trader on the high-yield desk at Goldman where he worked for eight years. His primary focus was bankruptcies and special situations. He left Goldman in December 1992 and started Appaloosa Management in early 1993.
In 2001 he generated a 61% return by focusing on distressed bonds, and in the fourth quarter of 2005 he pursued what he saw as better opportunities in Standard & Poor's 500 stocks. He makes significant gains year after year by “investing in the diciest of companies,” such as MCI and Mirant. Investments in Conseco and Marconi also led to huge profits for the company’s hedge funds while Tepper “keeps the market on edge.”
In 2009, Tepper's hedge-fund firm earned about $7 billion by buying distressed financial stocks (including acquiring Bank of America common stock at $3 per share) in February and March of that year and profiting from recovery of those stocks, with $4 billion of these profits going to Tepper's personal wealth. In March 2010, the New York Times reported that Tepper's success made him the top-earning hedge fund manager in the world in 2009, and in 2010 he was ranked by Forbes as the 258th richest person in the world. Over his 17-year hedge fund career, Tepper returned on average roughly 40 percent annually for himself and 30 percent annually for his investors.
At the peak in 2009, 30 percent of Tepper’s fund was in securities of financial companies. In early 2009, he bought American International Group's debt for 10 cents on the dollar. After receiving government assistance, prospects for the company looked much brighter and Tepper's investment soared to 61 cents on the dollar by December 2009. The same year he also purchased $2 billion in commercial mortgage-backed securities. Peter Cooper Village & Stuyvesant Town and 666 Fifth Ave. were two of the commercial properties. Then the government did not nationalize these banks and their securities soared, scoring Tepper one of the biggest annual paydays in hedge fund history.
Late in 2010, Tepper turned bullish on U.S. equities because the Federal Reserve signaled it was willing to conduct a second round of quantitative easing. Early in 2011, he remained bullish on U.S. stocks and the economy. In particular, he was upbeat about Dean Foods and Micron Tech. Last year, Tepper’s flagship Appaloosa fund returned an eye-popping 132.7%, net of fees. Through July of this year, the fund is up almost 42% on a net trailing annualized basis, according to performance documents from an investor.
Stocks That David Tepper Keeps Buying
No. 1: Hewlett-Packard Co. (HPQ, Financial), Weightings: 6.16% - 6,330,726 Shares
Hewlett-Packard is one of the global providers of computing and imaging solutions and services for business and home. Hewlett-Packard Co. has a market cap of $78.83 billion; its shares were traded at around $36.43 with a P/E ratio of 7.2 and P/S ratio of 0.6. The dividend yield of Hewlett-Packard Co. stocks is 1.3%, and it had an annual average earnings growth of 22.5% over the past five years.
Even after the recent 10% run in HPQ, shares are still incredibly cheap on any measure of cash flow or earnings. Many people fear that the tablet computer will eat up the laptop market, but HPQ has now entered the tablet market that is growing much faster than laptops; in the end. HPQ has repurchased over 10% of its market cap over the past year, which is a clear sign that the board and management think the stock is cheap. At 9.11X trailing earnings, there appears to be significantly lower risk in HP shares than in most of the technology stocks out there, partly because this high tech name is viewed as a printer company while its laptop and cloud services businesses are actually in growth mode. HPQ's 2008 revenue is $104 billion and the 2010 revenue of $114 billion, so HPQ was profitable during the financial crisis. HPQ focuses on the PC, printing, and services sectors with estimated revenue of $129 billion in 2011.
Stock peaked at $53.48 on November 6, 2007 and now trades for about $36.50. HPQ actually briefly reached above that level in April 2010, but has since plunged again. The stock is currently down 32% from the 2007 highs. Also, the end of first quarter return is -11% for this stock.
HP’s new TouchPad released was in a recent review by Engadget.com, the tablet “fails to live up to one's expectations” for a number of reasons: It’s bulky, lacks apps, has disappointing performance, and unimpressive software. The HP TouchPad simply cannot compete with Apple’s iPad 2.
David Tepper owns 6,330,726 shares of HPQ, valued as $259 million as of March 31, 2011, which accounts for 6.16% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 56.94%, again in the March 31, 2011 quarter by 8.34%. He started to buy this stock in late 2010 as the stock was having downward swing in stock price and since then, the price and Tepper’s position both increased ever since.
No. 2: Goodyear Tire & Rubber Co. (GT, Financial), Weightings: 5.42% - 15,248,003 Shares
Goodyear is one of the world's largest tire companies. Goodyear Tire & Rubber Co. has a market cap of $4.21 billion; its shares were traded at around $17.23 with a P/E ratio of 22.9 and P/S ratio of 0.2. Goodyear Tire & Rubber Co. had an annual average earnings growth of 2.3% over the past 10 years. Car tire makers like Michelin, Continental and Goodyear are doing very well right now on increased global car production as well as high demand for trucks especially in emerging markets.
Including manufactures of tires and rubber-related chemicals for transportation and industrial markets, taken together, investors are bullish on GT, and they added a net $122 million to their $160 million prior quarter position. Six increased their position, and none reduced it. The investors with the largest additions to their position include Appaloosa Management LP ($77 million), SAC Capital Advisors LP ($21 million), Zweig-DiMenna Associates ($12 million), Balyasny Asset Management LLC ($9 million) and Keeley Asset Management Corp ($2 million). GT trades at a forward P/E of 8, about mid-range based on its historic P/E range. Analyst targets are in the low-$20s; and of the eleven analysts covering the stock, eight rate it a buy/strong buy, two a hold, and one rates it at a sell.
Earnings per share growth estimate for the next 5 years at 26.35%. Shares shorted have decreased from 11.17 million to 10.63 million month-over-month, a change representing 0.24% of the company's 227.97 million shares float.
The company posted a threefold increase in profit to $127 million or 51 cents per share in the first quarter of 2011 from $41 million or 18 cents per share in the same quarter of 2010. Rising commodities prices and tight supply are giving tire makers an opportunity to push through larger and quicker price increases than ever before. Dealers, Distributors and Automakers increasingly express concerns about tire shortages (dealer fill rates for certain brands have recently declined to 45%) and as tire manufacturers implement frequent and increasingly large price increases. The end of first quarter return is 12% for this stock.
David Tepper’s bullish bets outperformed index funds are mainly because of his increased positions in Goodyear Tire, Macy’s, and Dean Foods. These were among his largest bullish positions and each of these stocks returned more than 20% during second quarter. David Tepper was the largest holder of GT at the end of first quarter.
David Tepper owns 15,248,003 shares of GT, valued as $228 million as of Mar. 31, 2011, which accounts for 5.42% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 227.45%, again in the March 31, 2011 quarter by 51.3%. He started to buy this stock in mid-2006 and has a complex trading pattern. Tepper has sold out twice and has the largest position right now on this stock than he ever had. His recent drastic increase in his position on this stock is simultaneous with a slight price increase, so it looks like he has much confidence in bullish behavior of this stock that he has not had since 2006.
No. 3: International Paper Co. (IP, Financial), Weightings: 4.11% - 5,738,512 Shares
International Paper Co. is a global paper and forest products company that is complemented by an extensive distribution system. It has a market cap of $13.23 billion; its shares were traded at around $30.26 with a P/E ratio of 11.1 and P/S ratio of 0.5. The dividend yield of International Paper Co. stocks is 3.4%, and it had an annual average earnings growth of 3.3% over the past 10 years.Earnings increased by 278.78% this quarter. SMA20 is 7.14%, whereas SMA200 is 12.98%. P/S is 0.52. Target price is 36.46, implying an about 20% upside potential. RBC and Credit Suisse suggested an outperform rating for IP, while Longbow, Deutsche Bank, and Argus recommend buying.
The momentum is truly delightful and can return serious profits. This is a risky stock that is significantly more volatile than the overall market (beta = 2.19). Debts are lower for the last three years, and the company pays a 3.49% dividend. Analysts estimate an annualized EPS growth of 4.97% for the next five years, which is quite reasonable given the 1.16% EPS growth over the last five years. The stock has gained 33.3% over the last year, but so far there is 0% return at the end of first quarter. IP will announce its second-quarter earnings on July 28, before the market opens.
David Tepper owns 5,738,512 shares of IP, valued as $173 million as of Mar. 31, 2011, which accounts for 4.11% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 178.57%, again in the March 31, 2011 quarter by 6.28%. He started to buy this stock in mid to late 2010, and then almost tripled his holdings by the end of 2010. Now, he has just increased his holdings by just slightly while the stock price has been constantly increasing from $22.6 to $28 during this time. So it seems Tepper had huge confidence in this stock in 2010 but has reached his limits.
No. 4: Macy's Inc. (M, Financial), Weightings: 3.87% - 6,712,625 Shares
Macy’s Inc., together with its subsidiaries, operates department stores and Internet Web sites in the United States. Macy’s Inc. has a market cap of $12.95 billion; its shares were traded at around $30.42 with a P/E ratio of 13.2 and P/S ratio of 0.5. The dividend yield of Macy’s Inc. stocks is 1.3%.
The company is trading significantly below analysts' estimates. M has a median price target of $35 by 14 brokers and a high target of $45. The last up/downgrade activity was on June 9, 2011, when Barclays Capital upgraded the company from Equal Weight to Overweight.
Macy’s reported June sales growth of 7.5%. To put this into context Macy’s easily beat the Wall Street consensus for June same-store sales of 4.9%. Further, for the second time in two months, Macy’s increased both its second quarter and full year sales guidance. For the second quarter Macy’s now expects same-store sales to increase 6% and for the year the Company now expects 4.8%. Macy’s initial guidance had been 4% for Q2 and 4.3% for the year. In the May sales release the company increased this outlook to 5% for Q2 and 4.5% for the year only to again increase the outlook after releasing June sales results. This company is executing on all cylinders. The end of first quarter return was 21%.
Macy's continued to report robust sales growth via its web business (+45.0% versus last year). This speaks to the Omnichannel strategy and suggests that Macy’s is able to compete with online retailers such as Amazon.com. Macy’s continues to be undervalued. The company is executing flawlessly and will continue to deleverage the balance sheet as debt comes due accruing more value to equity holders. With the increased dividend, recent upgrade at S&P to investment grade, and the potential for further capital return to shareholders makes M a good buy.
David Tepper owns 6,712,625 shares of M, valued as $163 million as of Mar. 31, 2011, which accounts for 3.87% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 17.99%, again in the March 31, 2011 quarter by 28.5%. He started to buy this stock as of mid-2010 and has increased his position overall steadily just as the stock price increased steadily since the beginning of 2009. There was a slight dip in stock price in late 2010 in which Tepper reacted in selling 8.5% of his position, but Tepper decided to increase his position after a similar dip in price last quarter.
No. 5: US Airways Group Inc. (LCC, Financial), Weightings: 2.57% - 12,447,139 Shares
US Airways Group, Inc. is an air carrier that transports passengers, property, and mail. The Company provides regularly scheduled service at airports in the United States, Canada, Europe, the Caribbean, and Latin America. Us Airways Group Inc. has a market cap of $1.33 billion; its shares were traded at around $8.21 with a P/E ratio of 3.9 and P/S ratio of 0.1.
LCC was acquired by America West Airlines in 2005, adding legacy international routes to a wide range of domestic US destinations, not just the northeast. This acquisition gives LCC a broad reach in the industry.
LCC booked stronger traffic in June from the year-earlier period and predicted total capacity in 2011 will rise about 1% as more customers seek flights. Mainline revenue passenger miles for the four-week period climbed 2.5% to $5.7 billion from June 2010, while mainline and express passenger revenue climbed a combined 6%. Capacity was $6.6 billion available seat miles, up 2.3% from a year ago, and load factor hit an all-time high in May of 87.1%, up slightly higher from last June. Also, mainline revenues were driven in its domestic and Atlantic markets, partially offset by a 5.2% decline in its smallest Latin market. For the remainder of 2011, U.S. LCC predicts mainline revenues will climb about 1.5%, with domestic capacity up slightly and international up about 3%. The end of first quarter return was 2%.
LCC trades at a forward P/E of 4-5, at the bottom of its historic P/E range. Analyst targets are in the mid-teens, more than 60% above current prices in the $9 range; and of the fourteen analysts covering the stock according to Seeking Alpha, seven rate it a buy/strong buy, seven a hold, and none rate it at underperform/sell.
David Tepper owns 12,447,139 shares of LCC, valued as $108 million as of Mar. 31, 2011, which accounts for 2.57% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 27.91%, again in the March 31, 2011 quarter by 329%. He started to buy this stock near the end of 2009 and held relatively the same position until last quarter during which the stock price went up from $3.9 to $10.6. During last quarter, the stock price for the quarter dropped for first time since mid-2009 to $9.6, yet Tepper drastically increased his position from around 2.9 million to 12.45 million shares.
No. 6: Navistar International (NAV, Financial), Weightings: 1.14% - 691,008 Shares
Navistar International is a holding company and its principal operating subsidiary is Navistar Int'l Transportation Corp. It makes trucks and military vehicles and is based in Illinois. Navistar International has a market cap of $4.1 billion; its shares were traded at around $56.71 with a P/E ratio of 15.8 and P/S ratio of 0.3. Navistar International had an annual average earnings growth of 2.5% over the past 5 years.
NAV is trading around $58.35 between $40.58 and $71.49 in the last 52 weeks. The 50 day moving average is $62.47 and the 200 day moving average is $58.96. NAV is estimated to earn $5.50 per share this year and $7.35 for next year.
NAV recently traded for around $68, but lately these shares are trading much lower due to concerns over the economy. However, the stock has bounced lately and the concerns over another major recession appear to be overblown. Insiders of NAV have been very active over the last two weeks with four directors picking up shares. The largest purchases have been by Mr. Clariond who picked up 71,000 shares for a total of $3.83 million. The end of first quarter return was -19%.
David Tepper owns 691,008 shares of NAV, valued as $48 million as of Mar. 31, 2011, which accounts for 1.14% of his equity portfolio. David Tepper added his positions in the Dec. 31, 2010 quarter by 12.22%, again in the Mar. 31, 2011 quarter by 49.83%. He started to buy this stock late 2009 and generally followed the trend of the stock price as he increased and decreased his position since then. After his initial buy of this stock and seeing the price was going up, he instantly tripled his holdings by the start of 2010 and then went with the flow of the stock price as he sold almost half of his position mid-2010 when the stock price took a dip. Now Tepper is on an upswing just like the stock price.
Stocks That David Tepper Keeps Selling
No. 1: Fifth Third Bancorp (FITB, Financial), Weightings: 1.09% - 3,306,006 Shares
Fifth Third Bancorp is a registered financial holding company and a multi-bank holding company. Fifth Third Bancorp has a market cap of $11.54 billion; its shares were traded at around $12.56 with a P/E ratio of 15.5 and P/S ratio of 1.6. The dividend yield of Fifth Third Bancorp stocks is 2%.
FITB Trust Preferred Shares got an unwelcome surprise last week when the corporation used a little recognized provision in their trust agreement to call the shares at $25 plus accrued dividends. These trust preferred shares had an 'earliest call date' of 5/15/2013 and a maturity date of 5/15/2058. The coupon on these shares was 8-7/8%, meaning that in the scramble by investors to maximize yield the price was driven as high as $27 recently and the shares had been trading at $26.60 the day before the call was announced. Immediately after the call the shares dropped to the $25 area leaving investors with an instant 5% loss.
Huntington Bancshares Incorporated (HBAN) sells for under 12 times expected 2011 earnings of 58 cents and less than 10 times 2012's consensus of 68 cents. It has had significant insider buying recently and a high capital tier ratio for a regional bank. Its operating margin is significantly better than two of its key competitors, Fifth Third (FITB) and Keycorp (KEY).
The stock closed at $12.34 recently, falling $1.88 or 13.22% in the last 90 trading days. After a failed Midwest explanation into Florida at the wrong time, the company has gone back to basics, and still has a strong franchise in its core markets. Earlier this year, it paid back the last of its Federal crisis funding, and it increased its dividend.
David Tepper owns 3,306,006 shares of FITB, valued as $46 million as of Mar. 31, 2011, which accounts for 1.09% of his equity portfolio. David Tepper reduced his positions in the Dec. 31, 2010 quarter by 8.35%, again in the Mar. 31, 2011 quarter by 65.07%. He started to buy this stock at the beginning of 2009 when FITB was at its lowest point in many years. FITB was always about $40 until mid-2007 when the stock price started to go straight downward to $3.1 when Tepper first bought over 20 million shares. Since then, Tepper has been steadily selling this stock every quarter as the stock price steadily increased every quarter to today’s price of over $12.
No. 2: Yahoo! Inc. (YHOO, Financial), Weightings: 0.87% - 2,193,644 Shares
Yahoo! Inc. is a global Internet communications, commerce and media company that offers a comprehensive branded network of services. Yahoo! Inc. has a market cap of $20.34 billion; its shares were traded at around $15.61 with a P/E ratio of 20 and P/S ratio of 3.2.
During the current quarter, institutional investors have been net buyers of 45.4 million shares, which represents 3.85% of the company's 1.18B share float. TTM P/E at 18.20 vs. three-year average at 32.28. Last year diluted EPS at $0.90 vs. two years prior EPS at $0.29. MRQ total debt/total assets at 0.0093. The stock has lost 7.1% over the last year.
Things have taken a turn for the worse for Yahoo! as it continues to lose ground to competitors like Google. Its Internet search business has fallen way behind Google’s, and even Microsoft’s Bing has entered the picture. Despite this weakness, Yahoo’s real value is derived from its news and other articles. Yahoo! Sports remains the most visited sports site on the web, Yahoo! Finance is a major source of financial news, and the front page remains a popular visit for its news and interest stories.
The company has had issues with its holdings of China’s Alibaba (ALBCF.PK), although it could turn out to be a very valuable holding, and shareholders are calling for the CEO to be fired. Even though revenue has fallen the last few years, EPS has been on the rise and is expected to grow even more. Just a few weeks ago, Yahoo had a P/E of 17, just below Google’s P/E of 18.5. Its PEG was just over 1, compared to Google’s of .6. That is why stock prices has gotten somewhat cheap from all the bad press with Alibaba over its Alipay payment unit and especially with its CEO. Yahoo! is still a major player on the web (it is still No. 2 in online display ad revenue), and earnings are growing.
In a letter to investors, David Einhorn said the kerfuffle, which has hit Yahoo’s stock hard, “wasn’t what we signed up for.” Einhorn said in the letter that his fund had “a modest loss” in Yahoo, which sources said was about $20 million. Einhorn had bought less than .65 percent of Yahoo, or about 8.5 million shares in March, which he said was due to his feeling that the company was undervalued with regard to its Asian assets. Einhorn, at the time, even said “We would not be surprised if YHOO’s 40 percent stake in Alibaba Group alone was ultimately worth YHOO’s entire current market value.”
David Tepper owns 2,193,644 shares of YHOO, valued as $37 million as of Mar. 31, 2011, which accounts for 0.87% of his equity portfolio. David Tepper reduced his positions in the Dec. 31, 2010 quarter by 2.96%, again in the Mar. 31, 2011 quarter by 18.92%. He started to buy this stock early 2010 of over 3 million shares, but because the price has not changed since then, Tepper has been selling every quarter.
No. 3: Hartford Financial Svcs. (HIG, Financial), Weightings: 0.61% - 946,917 Shares
Hartford Financial Services is one of the nation's largest investment and insurance companies, offers a complete line of insurance and financial service products to customers all over the world. The company's Property and Casualty Commercial segment provides workers compensation, property, automobile, marine, livestock, liability, and umbrella coverages, as well as customized insurance products and risk management services, including professional liability, fidelity, surety, specialty casualty coverages, and third-party administrator services. Hartford Financial Svcs. has a market cap of $11.7 billion; its shares were traded at around $26.27 with a P/E ratio of 5.7 and P/S ratio of 0.5. The dividend yield of Hartford Financial Svcs. stocks is 1.5%.
HIG recently doubled its dividend payment to 10 cents per quarter. It still pays out less than 20% of its pre-crisis dividend payout. S&P predicts average annual earnings growth of 17% over the next three years. S&P has a price target of $34 on Hartford and FBR Capital just raised its price target to $35. These shares have a relative strength index of about 33 which indicates the shares are oversold. HIG shares have fallen with the markets and also due to concerns about policies they have in Japan. The 50 day moving average is $27.17 and the 200 day moving average is $25.77. Earnings estimates for HIG are $3.80 per share in 2011.
HIG goes for under 7 times this year’s estimated EPS and around 6.5 times 2012’s consensus. HIG has absolutely hammered earnings estimates the last three quarters. The stock now is in the bottom quarter of its five-year valuation range based on P/B, P/E and P/CF. It yields 1.6% after doubling its dividend payment recently. It still pays out less than 20% of its pre-crisis dividend payout. S&P predicts average annual earnings growth of 17% over the next three years.
Both Travelers Companies and Chubb Corporation recently hit all-time highs while Allstate and Hartford Financial Services are trading significantly below 2006/2007 highs even though the companies both compete in the property and casualty sectors as well. HIG even trades as low as 0.6x book value making the valuation argument a lot more compelling in this sector.
David Tepper owns 946,917 shares of HIG, valued as $26 million as of Mar. 31, 2011, which accounts for 0.61% of his equity portfolio. David Tepper reduced his positions in the Dec. 31, 2010 quarter by 14.1%, again in the Mar. 31, 2011 quarter by 27.55%. He started to buy this stock mid to late 2009 of almost 5 million shares and some more over the next year, but due to very limited stock price growth and eventual decline in mid-2010, Tepper sold about 5 million shares. Tepper has been selling the rest little by little since then even when the stock price has been increasing since the huge sell.
No. 4: Newcastle Investment Corp. (NCT, Financial), Weightings: 0.08% - 546,192 Shares
Newcastle Investment Corp invests in real estate securities and other real estate-related assets. Newcastle Investment Corp. has a market cap of $504.2 million; its shares were traded at around $6.36 with a P/E ratio of 0.7 and P/S ratio of 1.6. The dividend yield of Newcastle Investment Corp. stocks is 6.3%.
NCT has P/E ratio of 0.60, forward P/E of 1.37, PEG of 0.44, and dividend/yield of 0.40/7.2%. Real estate overall is still not performing, but in the Teflon northeast market where Newcastle is located that is not the case. Its mix of commercial and residential paper has performed well and the company has added to investments with an expected average return of 18% on its investments. Only $20 million of the portfolio remains on negative watch. The common dividend was also recently reinstated at 0.40 annually. Current yield was just declared a 10-cent quarterly dividend and 7.3% annualized.
Net Institutional purchases over the current quarter at 9.4M, representing 12.87% of the company's 73.04M share float. It's been a rough couple of days for the stock, losing 14.49% over a week.
With a P/FCF of 9.08, institutional ownership comprising 42.4% of outstanding shares, and a noteworthy quarter-on-quarter increase in institutional transactions of more than 38%, NCT also exhibits additional positives, including an ultra-low PEG ratio (0.38) and positive year-on-year earnings growth. NCT is currently priced at about $5.29%
