David Tepper (Trades, Portfolio), founder of Appaloosa Management, disclosed last week he established three new holdings and increased his position in three others during fourth-quarter 2018.
A distressed-debt specialist, Tepper primarily invests in the debt of distressed companies. The founder of New Jersey-based Appaloosa has earned an international reputation for producing strong returns among Wall Street investors. During the December quarter, Tepper established holdings in Alerian MLP (AMLP, Financial), Allstate Corp. (ALL, Financial) and major Warren Buffett (Trades, Portfolio) holding Wells Fargo & Co. (WFC, Financial), and increased his positions in PG&E Corp. (PCG, Financial), Energy Transfer LP (ET, Financial) and Vistra Energy Corp. (VST, Financial).
According to current portfolio statistics, Tepper’s largest sectors in terms of portfolio weight are technology, utilities and financial services. The guru dedicated 42.43% of his portfolio to the technology sector: Tepper’s top holdings include semiconductor memory provider Micron Technology Inc. (MU, Financial) and social media giant Facebook Inc. (FB, Financial).
Alerian MLP
Tepper invested in 7,066,871 shares of Alerian MLP for an average price of $9.76 per share, giving the stake 3.10% equity portfolio space.
The exchange-traded fund seeks to track the investment results of the Alerian MLP Index, an index consisting of top energy infrastructure master limited partnerships. According to the website, the capped, float-adjusted, capitalization-weighted index tracks the performance of companies that earn the majority of cash flows from midstream activities that involve energy commodities.
Allstate
Tepper invested in 607,912 shares of Allstate for an average price of $89.38 per share, giving the position 2.52% equity portfolio space.
Allstate primarily offers property liability insurance, life insurance, retirement and investment products. According to GuruFocus, the Northbrook, Illinois-based company’s net profit margin and return on equity are outperforming over two-thirds of global competitors.
Other gurus with large holdings in Allstate include Richard Pzena (Trades, Portfolio)’s Pzena Investment Management and Robert Bruce (Trades, Portfolio)’s Bruce Funds.
Wells Fargo
Tepper invested in 300,000 shares of Wells Fargo, Buffett’s third-largest holding as of quarter-end. Shares of the San Francisco-based bank averaged $51.11 during the quarter.
GuruFocus lists several positive signs for Wells Fargo, including a price-book ratio near a five-year low and a dividend yield near a five-year high. Despite this, the bank has increased its long-term debt by $60.2 billion over the past three years, a possible sign of decreasing financial strength. Wells Fargo’s debt-to-equity ratio of 1.18 is underperforming 70% of global banks.
PG&E
Tepper added 2,475,016 shares of PG&E for an average price of $35.11 per share, increasing the holding 62.01% and his equity portfolio 2.95%.
PG&E operates Pacific Gas and Electricity, a regulated utility that serves millions of electricity and gas customers in Central and Northern California. GuruFocus ranks the company’s financial strength 4 out of 10 on several weak indicators, which include a low Piotroski F-score of 3 and an Altman Z-score that suggests possible bankruptcy within two years. While the company’s debt-to-equity ratio of 1 underperforms just 53% of global competitors, PG&E’s debt-to-EBITDA ratio exceeds Joel Tillinghast’s safe threshold of 4 and underperforms 69% of global regulated electric companies.
Baupost Group manager Seth Klarman (Trades, Portfolio) owns 15,474,483 shares of the distressed utility company as of quarter-end.
Energy Transfer
Tepper added 3,348,423 shares of Energy Transfer for an average price of $15.07 per share, increasing the position 76.58% and his equity portfolio 2.22%.
The Dallas-based company’s profitability ranks 9 out of 10 primarily due to expanding profit margins, a high Piotroski F-score of 7 and a GuruFocus business predictability rank of 4.5 stars. Despite this, GuruFocus ranks Energy Transfer’s financial strength 4 out of 10 on several weak indicators, which include low interest coverage, debt ratios that underperform over 89% of global competitors and an Altman Z-score that suggests moderate-to-severe financial distress.
Vistra Energy
Tepper added 548,998 shares of Vistra Energy for an average price of $23.5 per share, increasing the holding 27.67% and his equity portfolio 0.63%.
GuruFocus lists several warning signs for Vistra Energy, including a weak Piotroski F-score of 3 and a three-year revenue decline rate of 3.20%.
Disclosure: No positions.
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