Appaloosa Management, the Florida-based hedge fund founded in 1993 by David Tepper (Trades, Portfolio), has earned an international reputation for producing strong returns among Wall Street investors.
Known for being a distressed-debt specialist, filings show the billionaire guru's firm focuses on "equities and debt of distressed companies, exchange warrants, options, futures notes and junk bonds." Tepper announced in 2019 that he was converting his hedge fund into a family office now that he also owns the Carolina Panthers NFL football team.
As of the end of the third quarter, the communication services sector had the largest representation in Tepper's $5.66 billion equity portfolio with a 34.5% weight.
According to GuruFocus portfolio data, Tepper's five largest communication services holdings as of Sept. 30 were T-Mobile US Inc. TMUS, Facebook Inc. FB, Alphabet Inc. GOOG, Twitter Inc. TWTR and AT&T Inc. T.
T-Mobile
In the third quarter, the guru trimmed his stake in T-Mobile by 11.61% to 5.2 million shares. The position accounts for 10.54% of the equity portfolio and is the third-largest holding overall. GuruFocus estimates he has gained 31.06% on the investment since the fourth quarter of 2017.
The Bellevue, Washington-based telecom company, which operates a wireless network, has a $160.56 billion market cap; its shares were trading around $129.36 on Tuesday with a price-earnings ratio of 42.28, a price-book ratio of 2.5 and a price-sales ratio of 2.3.
The GF Value chart indicates the stock is significantly overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment as the share price and price-sales ratio are both approaching 10-year highs.
GuruFocus rated T-Mobile's financial strength 4 out of 10 on the back of poor interest coverage and assets that are building up faster than revenue is growing. The low Altman Z-Score of 1.13 also warns the company could be at risk of bankruptcy if it does not improve its liquidity.
The company's profitability fared better, scoring a 7 out of 10 rating on the back of an expanding operating margin, returns that outperform over half of its competitors and a moderate Piotroski F-Score of 6, which indicates business conditions are stable. T-Moviel also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in T-Mobil, Andreas Halvorsen (Trades, Portfolio) has the largest stake with 0.65% of outstanding shares. Tepper is second with 0.42%. Other top guru shareholders include Dodge & Cox, Warren Buffett (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Bill Nygren (Trades, Portfolio).
The investor curbed his ViacomCBS stake by 20.85% during the third quarter to 1.76 million shares. The holding accounts for 8.18% of the equity portfolio and is Tepper's fifth-largest position. GuruFocus data shows he has gained approximately 21.77% on the investment since establishing it in the third quarter of 2016.
The social media company, which is headquartered in Menlo Park, California, has a market cap of $780.97 billion; its shares were trading around $274.19 on Tuesday with a price-earnings ratio of 31.24, a price-book ratio of 6.63 and a price-sales ratio of 10.03.
According to the GF Value chart, the stock is fairly valued.
Facebook's financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company is being supported by a robust Altman Z-Score of 18.58. The return on invested capital also surpasses the weighted average cost of capital, indicating good value creation.
The company is also being supported by an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6. Facebook has recorded a slowdown in revenue per share growth over the past 12 months.
With a 0.31% stake, Chase Coleman (Trades, Portfolio) is Facebook's largest guru shareholder. Steve Mandel (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Frank Sands (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Dodge & Cox, Chris Davis (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) and many other gurus also have positions in the stock.
Alphabet
The guru reduced his Alphabet position by 22.9% during the third quarter, bringing the total holding to 257,500 Class C shares. The position accounts for 6.69% of the equity portfolio and is the seventh-largest holding. According to GuruFocus, Tepper has gained an estimated 37.8% on the investment.
The Mountain View, California-based tech company, which owns the Google search engine and YouTube, has a $1.19 trillion market cap; its Class C shares were trading around $1,760.06 on Tuesday with a price-earnings ratio of 33.89, a price-book ratio of 5.58 and a price-sales ratio of 7.38.
Based on the GF Value chart, the stock appears to be modestly overvalued. The GuruFocus valuation rank of 3 out of 10 aligns with that assessment since the share price and price ratios are nearing 10-year highs.
GuruFocus rated Alphabet's financial strength 8 out of 10 on the back of comfortable interest coverage and a high Altman Z-Score of 10.57. The company is also creating good value since its ROIC outperforms the WACC.
The company's profitability fared even better with a 9 out of 10 rating. While the operating margin is in decline, the returns outperform over half of its competitors. Alphabet also has a moderate Piotroski F-Score of 4. Boosted by consistent earnings and revenue growth, it also has a five-star predictability rank. GuruFocus data shows companies with this rank return an average of 12.1% annually.
Dodge & Cox is the largest guru shareholder of Alphabet's Class C stock with 0.38% of outstanding shares. PRIMECAP, Pioneer, Davis, Segalas, Al Gore (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Tom Russo (Trades, Portfolio) and many other gurus also own the stock.
Tepper slimmed his Twitter stake by 16.04% in the third quarter. Now holding 4.66 million shares, the position has 3.67% weight in the equity portfolio and is his eight-largest position. GuruFocus estimates he has gained 53.99% on the investment since the first quarter.
The social media company, which is headquartered in San Francisco, has a market cap of $41.37 billion; its shares were trading around $52.02 on Tuesday with a price-book ratio of 2.29 and a price-sales ratio of 11.98.
The GF Value Line suggests the stock is significantly overvalued.
Twitter's financial strength was rated 6 out of 10 by GuruFocus, driven by a high Altman Z-Score of 5.39. Assets are building up faster than revenue is growing, however, indicating the company may be becoming less efficient.
Weighed down by negative margins and returns that underperform over half of its industry peers, the company's profitability scored a 3 out of 10 rating. Twitter also has a low Piotroski F-Score of 2, indicating business conditions are in poor shape, and has recorded a slowdown in revenue per share growth over the past year.
With a 0.59% stake, Tepper is Twitter's largest guru shareholder. Other top guru investors include Pioneer, Cohen, David Einhorn (Trades, Portfolio), Bill Gates (Trades, Portfolio)' foundation trust, Joel Greenblatt (Trades, Portfolio), Michael Price (Trades, Portfolio), Mario Cibelli (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).
AT&T
The investor trimmed his AT&T position by 49.05% in the third quarter. The 4.6 million-share stake represents 2.33% of the equity portfolio. GuruFocus data shows Tepper has lost an estimated 0.08% on the investment since establishing it in the second quarter.
The Dallas-based telecom company has a $217.98 billion market cap; its shares were trading around $30.59 on Tuesday with a price-earnings ratio of 20.13, a price-book ratio of 1.24 and a price-sales ratio of 1.27.
The GF Value Line suggests the stock is fairly valued. The GuruFocus valuation rank of 6 out of 10, however, leans more toward undervaluation.
GuruFocus rated AT&T's financial strength 3 out of 10 on the back of poor interest coverage and a low Altman Z-Score of 0.97 that warns of the potential bankruptcy risk. The WACC also eclipses the ROIC, indicating poor profitability and issues creating value.
The company's profitability scored a 6 out of 10 rating, driven by an expanding operating margin, strong returns that outperform at least half of its competitors and a high Piotroski F-Score of 7, which implies business conditions are healthy. AT&T also has a one-star predictability rank that is on watch as a result of a decline in revenue per share over the past three years.
Pioneer is AT&T's largest guru shareholder with 0.09% of outstanding shares. Tepper is second with 0.06%. Barrow, Hanley, Mewhinney & Strauss, Simons' firm, Gabelli, the T Rowe Price Equity Income Fund (Trades, Portfolio), Greenblatt, Bruce Berkowitz (Trades, Portfolio), Mark Hillman (Trades, Portfolio) and several other gurus also own the stock.
Additional holdings
Tepper also has smaller positions in The Walt Disney Co. DIS and Netflix Inc. NFLX.
Within the communications services sector, the internet content and information industry has the largest representation in the portfolio at 18.54%.
Disclosure: No positions.
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