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Praveen Chawla
Articles (82) 

David Tepper Bets Big on the US Energy Complex

The guru's hedge fund took large positions in the oil and gas sector, which is paying off handsomely as the economy recovers

March 04, 2021 | About:

Appaloosa Management is one of the most successful hedge funds. Managed by David Tepper (Trades, Portfolio), the fund's equity portfolio is source of excellent ideas. Tepper is opportunistic in his equity investing and often takes a contrarian view that is worth following. He is particularly good at identifying macro and sector themes in his investment moves.

A review of Tepper's portfolio reveals that he invested heavily in the U.S. upstream and midstream energy complex in the fourth quarter. A large number of his new buys in this sector are highlighted in the chart below.

Tepper has invested in upstream exploration and production operators Occidental Petroleum Corp. (NYSE:OXY) and EQT Corp. (NYSE:EQT), midstream operators Enterprise Product Partners (NYSE:EPD), MPLX LP (MPLX), Kinder Morgan Inc. (KMI) as well as ALPS Alerian MLP ETF (AMLP). He also bought two energy-related exchange-traded funds, which were the SSGA Energy Select Sector SPDR (XLE) and SPDR Oil & Gas Exploration (XOP) ETFs.

We will briefly review three of Tepper's oil and gas stock picks.

Occidental Petroleum

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Occidental Petroleum's (NYSE:OXY) stock has recovered strongly year to date, while cash flows have remained resilient. Carl Icahn (Trades, Portfolio), another great value guru, owns a big chunk of the company. Warren Buffett (Trades, Portfolio) is also invested in the company via preferred shares.

Enterprise Product Partners

Enterprise (NYSE:EPD) is a high-quality midstream operator with a wide moat. Over the past 20 years, the company has grown its operating cash flow at a compound annual rate of over 15%. While growth has slowed down lately due to the "law of large numbers," it offers an excellent distribution yield.

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EQT

EQT (NYSE:EQT) is an upstream natural gas exploration and production company with operations focused in the cores of the Marcellus and Utica Shales in the Appalachian Basin. The company has approximately 17.5 trillion cubic feet equivalents of proved natural gas, natural gas liquids and crude oil reserves across approximately 1.3 million gross acres, including approximately 1.1 million gross acres in the Marcellus play. David Nierenberg, a deep-value investor who takes concentrated positions, also took a large position in the stock during the fourth quarter. EQT is currently trading well below its tangible book value.

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Conclusion

Tepper's shift toward energy stocks appears to be a opportunistic Covid recovery play. I expect he will sell out later this year as prices of the commodities recover, though it is also possible that he is hedging against inflation.

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Disclosure: The author owns shares of Enterprise Product Partners.

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About the author:

Praveen Chawla
I am a full-time investor now, investing my own money. I spent most of my working life in the pharmaceutical industry.

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