Appaloosa Management’s David Tepper (Trades, Portfolio) released his second-quarter portfolio this week, listing six new positions.
According to filings, the investor’s New Jersey-based hedge fund focuses on “equities and debt of distressed companies, exchange warrants, options, futures notes and junk bonds.”
During the quarter, the guru established positions in KeyCorp (KEY, Financial), Symantec Corp. (SYMC, Financial), Citizens Financial Group Inc. (CFG, Financial), Vistra Energy Corp. (VST, Financial), New Oriental Education & Technology Group Inc. (EDU, Financial) and NXP Semiconductors NV (NXPI, Financial).
KeyCorp
Tepper invested in 5.3 million shares of KeyCorp for an average price of $19.97 per share, dedicating 1.2% of the equity portfolio to the stake.
The Cleveland-based regional bank has a $22.37 billion market cap; its shares were trading around$21.2 on Wednesday with a price-earnings ratio of 16.22, a price-book ratio of 1.60 and a price-sales ratio of 3.74.
The Peter Lynch chart below shows the stock is trading slightly above its fair value, suggesting it is overpriced.
KeyCorp’s financial strength and profitability and growth were both rated 3 out of 10 by GuruFocus. The company has been negatively impacted by a heavy debt burden. Over the past three years, it has issued $1.9 billion in new long-term debt. Although the company has good margins and returns, its asset growth is faster than its revenue growth, meaning it is becoming less efficient. It also has a business predictability ranking of one out of five stars. According to GuruFocus, companies with this rank see an average gain of 1.1% in stock price per year.
Of the gurus invested in KeyCorp, Barrow, Hanley, Mewhinney & Strauss has the largest position with 1.52% of outstanding shares. Other guru shareholders include the T Rowe Price Equity Income Fund (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Martin Whitman (Trades, Portfolio)’s Third Avenue Management (Trades, Portfolio), Arnold Schneider (Trades, Portfolio), George Soros (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and David Dreman (Trades, Portfolio).
Symantec
Having previously sold out of Symantec in the second quarter of 2017, the guru established a new 3.8 million-share stake for an average price of $23.97 per share, allocating 0.9% of the equity portfolio to the holding.
The security software products developer, which is headquartered in Mountain View, California, has a market cap of $11.45 billion; its shares were trading around $18.42 on Wednesday with a price-earnings ratio of 10.06, a price-book ratio of 1.95 and a price-sales ratio of 2.40.
According to the Peter Lynch chart below, the stock is undervalued since it is trading below its fair value.
Symantec’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. In addition to having weak interest coverage, the company’s Altman Z-Score of 1.15 indicates it is at risk of going bankrupt. Although the operating margin is declining, it still outperforms nearly 70% of competitors. The company is strengthened by a Piotroski F-Score of 6 and a one-star business predictability rank.
With his purchase of 0.61% of the company’s outstanding shares, Tepper became the company’s largest guru shareholder. John Buckingham (Trades, Portfolio), Pioneer, Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and Paul Tudor Jones (Trades, Portfolio) also own the stock.
Citizens Financial
The investor picked up 1.2 million shares of Citizens Financial for an average price of $41.67 per share, giving the stake 0.56% space in the equity portfolio. He previously exited a position in the stock in the first quarter of 2017.
The Providence, Rhode Island-based bank has an $18.93 billion market cap; its shares were trading around $39.78 on Wednesday with a price-earnings ratio of 10.84, a price-book ratio of 0.95 and a price-sales ratio of 3.33.
Based on the Peter Lynch chart below, the stock appears to be undervalued since it is trading below its fair value.
GuruFocus rated Citizens Financial’s financial strength 4 out of 10 because it has issued approximately $4.6 billion in new long-term debt over the past three years. The company’s profitability and growth scored a 3 out of 10 rating despite having strong margins and returns.
Hotchkis & Wiley is the company’s largest guru shareholder with 1.59% of outstanding shares. Steven Cohen (Trades, Portfolio), Pioneer, Robert Olstein (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Ainslie, Jones, Pzena, Dreman and Caxton Associates (Trades, Portfolio) also have positions in the stock.
Vistra Energy
Tepper purchased 1.8 million shares of Vistra Energy for an average price of $22.97 per share, expanding the equity portfolio by 0.51%. He previously sold out of the stock in the first quarter.
Headquartered in Irving, Texas, the energy and power company has a market cap of $11.52 billion; its shares were trading around $22.21 on Wednesday with a price-earnings ratio of 26.74, a price-book ratio of 1.40 and a price-sales ratio of 1.71.
The median price-sales chart below shows the stock is trading above its historical average.
Vistra’s financial strength and profitability and growth were both rated 3 out of 10 by GuruFocus. While the company’s cash-to-debt and debt-to-equity ratios are outperforming the industry, the Altman Z-Score of 0.59 indicates it is at risk of going bankrupt. In addition to having poor margins and returns, the company’s revenue per share is also in decline.
With 8.59% of outstanding shares, Howard Marks (Trades, Portfolio)’ Oaktree is the company’s largest guru shareholder. Other guru investors are John Paulson (Trades, Portfolio), Bruce Berkowitz (Trades, Portfolio), the Fairholme Fund (Trades, Portfolio), Pioneer, Alan Fournier (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Grantham.
New Oriental Education & Technology
Tepper bought 360,189 shares of New Oriental for an average price of $95.63 per share. The trade had an impact of 0.39% on the equity portfolio.
The Chinese company, which provides educational services, has a $12.95 billion market cap; its shares were trading around $82.15 on Wednesday with a price-earnings ratio of 43.96, a price-book ratio of 6.57 and a price-sales ratio of 5.83.
The Peter Lynch chart below suggests the stock is overpriced since it is trading higher than its fair value.
Boosted by a high Altman Z-Score and no debt, GuruFocus rated New Oriental’s financial strength 9 out of 10. The company’s profitability and growth scored a 7 out of 10 rating. While the operating margin has declined over the last five years, it still outperforms 64% of competitors. The Piotroski F-Score of 3, however, indicates poor operating conditions. The company also has a 3.5-star business predictability rank, which, according to GuruFocus, means it sees an average increase of 9.3% per year in stock price. In addition, the company has consistent earnings and revenue growth.
Chris Davis (Trades, Portfolio) has the largest position in the company among the gurus, holding 3.09% of outstanding shares. Chase Coleman (Trades, Portfolio), Columbia Wanger (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Pioneer, Grantham, Ainslie, Caxton, Jones, Dalio and Julian Robertson (Trades, Portfolio) are also shareholders.
NXP Semiconductors
Having previously closed a position in NXP in the fourth quarter of 2016, Tepper established a new holding of 219,272 shares for an average price of $110.33 per share. He gave the holding 0.28% space in the equity portfolio.
The Dutch semiconductor manufacturer, whose acquisition deal with Qualcomm Inc. (QCOM, Financial) recently fell through, has a market cap of $30.53 billion; its shares were trading around $88.65 on Wednesday with a price-earnings ratio of 31.57, a price-book ratio of 2.24 and a price-sales ratio of 3.27.
According to the Peter Lynch chart below, the stock is overpriced since it is trading higher than its fair value.
Despite having low interest coverage and an Altman Z-Score that indicates the company is under some fiscal pressure, GuruFocus rated NXP’s financial strength 6 out of 10. The company’s profitability and growth scored a 7 out of 10 rating. While the operating margin outperforms only 51% of competitors, the high Piotroski F-Score of 7 implies the company has good business operations.
Of the many gurus invested in NXP, Paul Singer (Trades, Portfolio)’s Elliott Management has the largest position with 5.01% of outstanding shares. Other top guru shareholders include Daniel Loeb (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Paulson, Soros, Pioneer and Grantham.
Additional trades
Tepper also added to several positions during the quarter, including Micron Technology Inc. (MU, Financial), Western Digital Corp. (WDC, Financial), Caesars Entertainment Corp. (CZR, Financial), Cheniere Energy Inc. (LNG, Financial) and Wells Fargo & Co. (WFC).
The guru’s $8.7 billion portfolio, which is composed of 48 holdings, is largely invested in the technology sector.
Disclosure: No positions.
