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Top Dividend Stocks of David Tepper: IP, BP, KB, MAS, KLA

December 13, 2011 | About:
Mara Kohn

Mara Kohn

4 followers
David Tepper is the founder of Appaloosa Management hedge fund. Since its inception, Tepper has been able to generate enormous returns.

Tepper is very savvy and since he was in college he started developing trade options systems. He started working at Republic Steel Corp.'s finance department after graduating. Then, he moved to Keyston Fuds. In 1985 he started working for Goldman Sachs until he decided to found Appaloosa with Jack Walton, another Goldman Sachs trader.

He has always been characterized for his clever investments. Indeed, they have made him rather unique because his strategy is based on investing in distressed companies. In a nutshell, great but underpriced businesses.

That is how his company has been able to reach two-digit gains.

Of course his form of investing is quite risky and he has made mistakes too. But it is worth noting that he has always looked at troubled companies that have slumped due to market crashes. Tepper always thinks that upon their recovery, he will receive important gains.

Jonathan Kolatch, a former colleague, clarifies the situation: "He takes a macro perspective on something, for instance this European sovereign crisis, which is that ‘it’s not going to be that bad. And then he takes that and applies it to a micro idea, a particular stock, as opposed to saying I’m going to do this with the currency or do this with the interest rate, which is kind of what the macro guys do. He’ll buy these particular three stocks that will reflect this macro idea."

Here are some of his top dividend stocks.

International Paper (IP): IP is a paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia, and North Africa. It also operates pulp and paper business in Russia through its joint venture with Ilim Holding S.A.

International Paper directly sells to end users and converters, as well as through agents, resellers and paper distributors.

In the third quarter, it has been able to generate earnings per share of $0.92 as opposed to the $0.80 reached in the second quarter and $0.91 in the year-ago period

The company comprises four segments, namely: Industrial Packaging, Printing Papers, Consumer Packaging and Distribution, which helped to improve operating profits during the quarter.

The stage for the coming years has already been set with the agreement to purchase Temple-Inland (TIN). This agreement will enable the company to enter the Indian paper market, and shuffle several of its highest-ranking executives.

BP Plc (BP): BP is one of the world's leading international oil and gas companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products. This company operates in 29 countries.

BP is currently trading at $43.41 per share. It has EPS of 7.32, P/E of 5.90, and a dividend rate of 1.68 representing a yield of 3.87.

The market cap valuation is 137 billion.

BP is still considered a suitable stock for investors who are permanently looking for discounts to enter long positions. It may also be suitable as a short- to medium-term play.

KB Home (KBH): KBH is a company that builds affordable houses targeting first-time, first move-up, and active adult buyers primarily in the western, southwestern and southeastern U.S. It also offers mortgage banking, title and insurance services to its customers.

KB expects to improve financially after eliminating more than $4 billion in inventory due to an unprecedented drop in the housing market and use much of the proceeds to drastically reduce gross debt during the corresponding time period.

Masco (MAS): One of the largest housing-related manufacturing and service businesses in the U.S. is Tepper’s third pick.

The firm makes plumbing products, cabinets, paint, windows and other home products under familiar brand names like Delta Faucet, KraftMaid Cabinetry, Behr paint and Milgard Windows.

It also operates abroad, primarily in Europe. Masco provides domestic home product installation and insulation services.

Since housing peaked in 2006, the firm has modernized its manufacturing operations and reduced selling, general, and administrative expense to a great extent.

The company has continued to generate sound free cash flow.

KLA-Tencor (KLA): KLA is a company that designs and manufactures yield-management and process-monitoring systems for the semiconductor industry.

The systems are useful to analyze the manufacturing process during the product’s development.

From a financial standpoint, KLA is solid. At the end of the fiscal first quarter, the firm had $2.1 billion in cash and investments and $746 million in debt.

Its sound cash position gives the firm plenty of flexibility, especially in terms of expenditures and strategic acquisitions.

Rating: 3.4/5 (10 votes)

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