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Value + Yield Stocks I Will research from Tepper's Portfolio

December 28, 2011 | About:
Federico Flom

Federico Flom

6 followers
David Tepper is the founder of the hedge fund Appaloosa Management. Since it was founded, Tepper has generated enormous returns. Tepper's clever investments are very interesting. Indeed, he has a rather unique strategy, which involves investing in distressed companies. In a word, he invests in great but under-priced businesses. And this is what has made its company reach two-digit gains. Actually, distressed investments have made him earn $4 billion in 2009.

His strategy is quite risky. He has always focused on troubled companies knowing that they will recover and thus provide important gains. Of course, he has made mistakes too.

Tepper’s former colleague, Jonathan Kolatch, explains it quite well: "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."

I researched David Tepper top yielding stocks and I found that these companies could offer both an attractive yield and good value. I trust in Appaloosa's research capabilities and I have past success (2009 and 2010) following their picks.

These are the stocks I found interesting to study:

International Paper (IP) : 3.6% Yield

IP isapaper and packaging company with operations in North America, Europe, Latin America, Russia, Asia and North Africa. Moreover, it has agreed to purchase Temple-Inland TIN, entering the Indian paper market. The company sells its paper, packaging products, and other products directly to end users and converters, as well as through agents, resellers, and paper distributors.

It is made up of four segments: Industrial Packaging, Printing Papers, Consumer Packaging and Distribution.

Third quarter results were good for the IP. The company generated EPS of $0.92 versus $0.80 in the second quarter and $0.91 in the year-ago period.

Most of IP's North American mills have operating costs lower than the industry average.

Management is now focused on fewer business lines and can more easily optimize the performance of IP's core paper and packaging businesses. Overseas operations in Brazil, Russia, and China provide the opportunity for future top- and bottom-line growth.

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BP Plc (BP): 3.9% Yield

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. It operates in 29 countries and is considered one of the more oily super-majors.

63% of its production comes from oil.

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KB Home (KBH): 3.9% Yield

It builds affordable houses targeting first-time, first move-up, and active adult buyers primarily in the western, southwestern, and southeastern United States. Home also provides mortgage banking, title and insurance services to its customers.

The currently depressed housing market holds high potential for a dramatic rebound in the coming years, providing major upside opportunity.

KB Home operates as a leading-edge thinker in the home-building market, generating offerings such as the firm's customizable Open Series, comprehensive eco-friendly homes, and design tie-ins from popular national brands such as Disney and Martha Stewart.

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Masco (MAS): 2.9% Yield

Mascooperates one of the largest housing-related manufacturing and service businesses in the United States. The company also operates abroad, primarily in Europe, under nameplates like Hansgrohe plumbing and Cambrian Windows. In addition, Masco provides domestic home product installation and insulation services, a business that is currently deeply depressed.

Since housing peaked in 2006, the firm has dramatically increased its manufacturing operations and reduced selling, general, and administrative expense significantly. The company has continued to generate sound free cash flow averaging $500 million during the three years ended in 2010.

The recent consolidation of Masco's cabinet business into one unit should boost what have been historically poor margins going forward. Masco holds the potential to realize 20%-30% incremental operating margins when revenue rebounds.

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KLA-Tencor (KLAC) : 2.9% Yield

KLA-Tenor designs and manufactures yield-management and process-monitoring systems for the semiconductor industry. The systems are used to analyze the manufacturing process at various steps in a product's development. KLA-Tencor also provides systems for optical metrology and e-beam metrology.

KLA is financially solid. By the end of the first quarter, the firm had $2.1 billion in cash and investments and $746 million in debt on its balance sheet. KLA's solid cash position gives the firm plenty of flexibility, especially when it comes to R&D expenditures and strategic acquisitions.

PDC tools lower production costs and maximize productivity for chipmakers, making them a crucial part of the semiconductor manufacturing process. KLA has the most extensive data and knowledge base in the PDC market. It has gained it through years of industry leadership, making it difficult for competitors to catch up.

KLA has the broadest portfolio of tools in the market. KLA remains at the forefront of PDC technology, and its strong financial position allows it to spend large sums on R&D to maintain its technological lead.

The firm's prime aim is to stay two technological generations ahead of the semiconductor industry and at least one generation in front of competitors.

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Rating: 3.5/5 (14 votes)

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