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Stepan Lavrouk
Stepan Lavrouk
Articles (414) 

David Tepper Is Tentatively Buying

The hedge fund manager seems uncertain

March 25, 2020

David Tepper (Trades, Portfolio) is the president of Appaloosa Management, a hedge fund he founded in 1993. Although he began to convert Appaloosa to a family office in 2019, he is still an active investor on his own behalf, and frequently comments on market activity. On March 24, Tepper went on CNBC to talk about whether investors should start buying depressed stocks.

Too many variables

Tepper was asked whether he thinks that now is a good time to start buying stocks, now that the markets have declined as much as they have. He said that he doesn’t know whether we have reached the bottom for stock prices, but if Republicans and Democrats come to an agreement on a stimulus package, it could be a good time to buy. He also pointed out that some industries might be altered in a very significant way (perhaps referring to the hospitality and tourism sectors):

“You have to be very selective here, because there are some industries that will be changed, and some industries that will be more affected over the medium or longer term, because I do believe we will continue to have some sort of social distancing. If you look at past periods [of stock activity], we could go 10% lower. I’m nibbling, for what it’s worth.

On the other hand, this could be near bottom if they [Congress] get this package done. I don’t know for sure, because there’s just too many variables right now involved. But if you’re looking over the long term, then it might be time to buy a little...There are companies that a year or two from now that are going to come out higher, no doubt. There are some other companies that may not be around!”

As an investor who has historically been very active in the tech sector, Tepper sees opportunity there, as well as in healthcare stocks and some junk loans, in particular bank debt.

My personal view is that there is a chance that the big tech companies that enjoyed an impressive bull run over the last decade might undergo some kind of multiple compression. That is, their price-earnings ratios will come down. Growth has been slowing among the FANG (Facebook (FB), Apple (AAPL), Netflix (NFLX) and Google (GOOGL)) stocks for some time, but this health crisis might be the reset that will change investor psychology going forward.

I also find it interesting how Tepper hedged his comments, saying that he is doing "some" buying but acknowledging that there might be more selling yet. I’ve noticed this type of phrasing a lot over the last week - no investor wants to be the one to come out and unequivocally say that this is definitely the time to buy.

I feel like this is pretty symptomatic of the uncertainty that currently pervades the market, and is one reason why the recent rallies may not be sustainable. If nobody really believes that the worst is over, then it probably isn’t over. Fear and uncertainty becomes a self-fulfilling prophecy.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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