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Yamil Berard
Yamil Berard
Articles (192) 

David Tepper's Little-Known Conviction Picks

Fans of the rock star investor are familiar with his stakes in Facebook, Micron and Allergan. But what about a few other notable performers?

July 05, 2018 | About:

After taking a look at his portfolio of 52 stocks, hedge fund manager David Tepper (Trades, Portfolio) isn’t shy about where his loyalties lie.

As a super investor who is keenly aware of business economics, the Pittsburgh native holds five high-conviction picks in a portfolio worth almost $10 billion. He's held this handful of favorites for more than a year.

Fans of the founder of Appaloosa Management are familiar with the high-profile picks that richly line his goody bag, the high-flying stocks of companies like social media giant Facebook Inc. (NASDAQ:FB) and software developer Micron Technology (NASDAQ:MU) and Allergan PLC (PLC), the pharmaceutical company that makes Botox.

Shares of the three companies easily make up more than one-third of the portfolio for a combined estimated value of $3.4 billion. On Thursday, all three stocks were in the green by as much as 2.6%.

And if you’re wondering what his returns have been for the three stocks, GuruFocus data shows estimates in the range of 61% to 83.55%. These returns add considerable weight to Tepper's international reputation as among the managers with the best returns on Wall Street.

Let’s take a look at those high-conviction picks that are not as widely publicized, which include a midstream oil and gas supplier and a discount retailer with more than 13,000 stores in 43 states. At least one of the investments has produced an estimated return of 16% since he initiated the position over a year ago.

Energy Transfer Equity

The limited partnership company Energy Transfer Equity (ETE) owns and operates natural gas gathering systems, natural gas intrastate pipeline systems and gas processing plants. The Dallas-based company also has an interest in Energy Transfer Partners (NYSE:ETP), which owns a large platform of crude oil, natural gas and natural gas liquids assets in Texas and the U.S. midcontinent region. In all, Energy Transfer Partners owns 71,000 miles of pipelines and a large network of refined product distribution.

Tepper first bought shares of the company in the second quarter of 2017. Today, his investment is valued at roughly $89.4 million.

A total of 6.29 million shares sit in about 0.93% of the portfolio. The estimated gain on the investment since he established the position was reported at an estimated 1%. His average purchase price on the shares was $17.59.

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In Thursday trading, Energy Transfer stock closed at $17.61 per share, up 1.32%.

It is trading at 18.99 times price-earnings, which is higher than half of the 94 companies in the Global Oil & Gas Midstream industry. It is trading at 10.27 times forward earnings, which is higher than 93% of its competitors.

The GuruFocus median price-sales chart shows the stock is trading below historical value.

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The trend lines show the company has been inconsistent in bringing in revenue in recent years.

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GuruFocus’ warning screener identified a decline in revenue per share over the last three years, as a potential concern. It also identified a debt load of $9 billion over the past three years, another concern.

Investors may like its 6.77% dividend yield, which is lower than 77% of its peers. (GuruFocus believes that the payout ratio is too high at this time.) The company also boasts a very good Piotroski F-Score, which demonstrates very healthy business operations. And, it is seeing an expansion in its operating margins.

The company has a market cap of $19 billion. GuruFocus ranks it 3 out of 10 in financial strength, in part because of its large amount of debt. It has a profitability and growth of 8 out of 10.

Gurus who held the stock in the first quarter include Leon Cooperman (Trades, Portfolio), Steven Cohen (Trades, Portfolio), David Dreman (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Jim Simons (Trades, Portfolio).

Dollar General Corp.

Dollar General Corp. (NYSE:DG) has a four-star business predictability rating, which highlights the stocks that exhibit steady earnings and revenue growth over many years. Dollar General has demonstrated an average gain in stock value of 9.8% a year over the last five years. The company also have a very high Piotroski F-Score, signaling a very healthy business situation.

Tepper owns 1.2 million shares of the Tennessee-based company, which sit in about 1.18% of his portfolio. He began purchasing the stock in the second quarter of last year. His initial average purchase price was $71.99 a share. So far, the investment has produced an estimated gain of 16%.

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The company has a market cap of $26.2 billion. At $98 a share, the stock is trading above its historical value based on the median price-sales chart by GuruFocus.

The stock closed at $98.16 a share, up 0.06%, on Thursday.

The company reported a dividend yield of 1.1%, which is lower than 70% of its peers in the Global Discount Stores industry. Dollar General has a financial strength rating of 7 out of 10 and profitability and growth rating of 8 of 10. The profit and growth rating was largely influenced by an average earnings growth rate of 16.6% a year over the last decade.

Guru investors included in the first quarter John Hussman (Trades, Portfolio), Simons, Paul Tudor Jones (Trades, Portfolio), Frank Sands (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Mario Cibelli (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).


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