Appaloosa Management's 35 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Appaloosa Management’s 35 Stock Portfolio: Top 10 Holdings Analyzed


Updated on September 30th 2021, by Nikolaos Sismanis

Appaloosa Management was founded in 1993 by David Tepper and Jack Walton. The firm used to operate as a junk bond investment company in the 1990s but evolved through the 2000s to become a more diversified hedge fund.

It has been one of the most successful hedge funds by specializing in public equity and fixed income markets around the world, delivering jaw-dropping returns to its institutional investors during times of distress.

As of its last 13F filing, the fund had ~$4.8 billion in managed securities under management, a 30% decline from its previous quarter amid lower capital allocation in its public-equity holdings, possibly due to losing some clients.

Investors following the company’s 13F filings over the last 3 years (from mid-September 2018 through mid-September 2021) would have generated annualized total returns of 11.12%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.08% over the same time period.

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

Click the link below to download an Excel spreadsheet with metrics that matter of Appaloosa Management’s current 13F equity holdings:

 

Keep reading this article to learn more about Appaloosa Management.

Table Of Contents

David Tepper

Little can be said about Appaloosa Management without mentioning its legendary manager David Tepper. Mr. Tepper has been one of Wall Street’s highest-paid hedge fund managers of the past decade, delivering market-beating returns during recessionary times.

His net worth is currently around $14.5 billion. His fortune was made through Appaloosa, having the majority of his assets attached to the fund. Mr. Tepper has created most of his and Appaloosa’s value by navigating the fund’s allocations during times of distress.

In 2001, for example, when the market was suffering massive losses amid the dot com bubble, Mr. Tepper generated a 61% return by focusing on distressed bonds. During the Great Recession, he embraced the “buy when there is blood in the streets” mentality by purchasing distressed financial stocks.

While everybody else was dumping their shares, Tepper was scooping up shares, including his famous play of buying Bank of America (BAC) shares for $3 each, as well as AIG’s debt.

His bold bets paid off massively. From 2009 to 2010, the fund’s assets under management grew from $5 billion to $12 billion. Around $4 billion of these gains were added to Mr. Tepper’s net worth, making him the highest earner of the recession and forming the majority of his wealth.

Last year, Mr. Tepper announced his retirement to pursue owning the Carolina Panthers football team, which he bought in 2018 for a record $2.3 billion. A portion of Appaloosa’s assets left the fund, which may explain its current reduced AUM of $4.8 billion.

Appaloosa Management’s New Buys & Sells

During its latest 13F filing, Appaloosa Management executed the following notable portfolio adjustments:

New Buys:

New Sells:

Appaloosa Management’s Current Major Investments

Appaloosa Management’s long-term strategy has focused on concentrated investment positions with multi-bagger potential. This investment philosophy seems to be the case well after Mr. Tapper’s departure, as the fund’s nearly $6.9 billion-worth public equity portfolio consists of only 36 stocks, with the top 5 accounting for around 49% of its total holdings.

Source: 13F Filings, Author

The fund’s 10 largest investments are the following:

Facebook (FB)

Appaloosa decreased its Facebook stake by around 33%, but the stock is currently the portfolio’s largest holding due to the fund unloading massive portions of its other stakes. Facebook shares account for around 10.8% of the fund’s holdings. With strong growth, a healthy balance sheet, and the best platform for advertisers to utilize, Facebook remains an attractive pick at a reasonable valuation.

Facebook is currently enjoying excellent financials, with a net cash position of $64 billion (nearly 6.6% of the market capitalization of the stock). Facebook is one of the extremely few companies that have no debt. This is a testament to the strength of its business model and its execution.

Moreover, even though half of the globe uses at least one of its apps on a monthly basis, its user base is still growing at double-digit rates. The company has reported an all-time high bottom line of $38.96 billion over the past four quarters, amid user growth and snowballing ARPU (Average Revenue Per User.)

For these reasons, it would not be a complete surprise if Facebook paid a dividend at some point in the future.

Facebook remains one of the most cheaply valued growth stocks out there, still retaining 20%+ revenue growth but trading at a forward P/E of just 23.7.

Appaloosa holds Facebook since Q1-2016, which highlights its conviction in the company’s long-term prospects.

Amazon.com Inc. (AMZN)

Amazon is Appaloosa’s second-largest holding, comprising 10% of its total portfolio. The fund trimmed its position by 32% during the last quarter.

Amazon delivered another solid quarter recently, with Q2 AWS net sales up 37% YoY to $14.81 billion, topping the $14.1 billion consensus estimate. Revenues grew to $113.1 billion, a 27.2% increase YoY, contributing to all-time high LTM (last twelve months) sales of $443.3 billion.

Due to scaling its operations, the company’s net income margins have expanded, reaching 6.64% during this period, turning Amazon into an increasingly profitable company. The stock is currently trading at a forward P/E of 59.2, but considering its EPS growth, it could be a reasonable valuation multiple.

The stock has had a place in Appaloosa’s portfolio since Q1-2019.

Alphabet (GOOGL)(GOOG)

Alphabet offers several well-known products, such as Google, Android, Chrome, Google Cloud, Google Maps, Google Play, YouTube, as well as technical infrastructure. While the company’s expansion has lasted for more than a decade and a half, it is still a high-growth stock.

Revenue growth has re-accelerated, with its most recent quarter posting growth of nearly 62%, despite the deceleration caused during the first couple of quarters during the initial pandemic outbreak. The company is one of the most attractively priced stocks in the sector as well, trading at around 27.7 times its forward earnings, despite its consistent growth, massive moat, and strong balance sheet.

With its robust profitability, Alphabet has accumulated a cash and equivalents position of $135.8 billion. As a result, the company can comfortably afford to burn up cash for its long-term bets such as Waymo, and in the meantime return ample dollars back to its shareholders through buybacks. Alphabet has repurchased nearly $40 billion worth of stock over the past year, retiring shares at an all-time high rate.

Appaloosa trimmed its position by 36% during the quarter. The stock accounts for around 9.9% of its portfolio.

Micron Technology (MU)

Despite Appaloosa trimming its Micron Technology stake by 22%, the company is currently the fund’s fourth-largest holding, accounting for around 9.8% of its public equity investments. The stock has experienced a spectacular rally over the past 4 years, as the demand for its semiconductors has been explosive.

While the stock is considered speculative, its robust profitability over the last several years has proven bears and short-sellers wrong. Many had predicted that the company’s top & bottom lines would suffer due to the pandemic.

However, Micron posted a robust FY2020 net income of $2.69 billion. The company is expected to produce FY2021 EPS of $910.49, implying a forward P/E in the single digits which indeed suggests a relatively fair multiple for a company in the semiconductor industry.

Still, the industry remains wildly cyclical, which could translate to volatile future performance for MU’s shareholders.

T-Mobile US, Inc. (TMUS)

T-Mobile has had a place in Appaloosa’s portfolio since 2017. With T-Mobile acquiring Sprint last year, the company should be able to actively compete with AT&T (T) and Verizon (VZ). As a result of the synergies to be unlocked, the company should undergo a growth phase over the next few quarters. Revenues rose by 13.2% to $120 billion in the most recent quarter, with service revenues growing to $14.5 billion.

Management raised its merger synergy forecasts following the ongoing integration progress. Around 50% of Sprint’s customer traffic is now carried on the T-Mobile network, while approximately 20% of Sprint customers have been moved over. It now expects merger synergies of $2.9-$3.2 billion for FY2021 (up from $2.8-$3.1 billion), which amounts to double last year’s synergies. Due to increased investor expectations, the stock’s valuation multiple has expanded, currently at a forward EV/EBITDA multiple of 9.4.

The stock currently occupies around 8.6% of Appaloosa’s portfolio. It is now the fund’s fifth-largest holding.

PG&E Corporation (PGE)

PG&E was Appaloosa’s largest holding at one point. The hedge fund slashed its position by a further 43% during this quarter, netting Appaloosa decent profits from the stock’s recovery from last year’s levels. With the rest of its stake in PG&E, Appaloosa likely aims to benefit from the company’s challenged situation.

Should the company recover, Appaloosa is likely to have made one of its most successful distressed equity investments, buying shares near their 50-year lows. Still, the company remains very risky and has suspended dividends. Therefore, retail investors should be very aware of the underlying concerns before allocating capital to the company.

PG&E remains unprofitable, though analysts expect profitability to resume next year.

Occidental Petroleum Corporation (OXY)

Occidental, along with the other new stakes that the fund initiated during the pas few quarters like Chesapeake Energy Corp (CHK) and BP plc (BP), likely indicate that the Appaloosa is becoming bullish on the energy sector.

The company has essentially suspended its dividend at this point, paying only a penny per quarter, as it recovers from the pandemic conditions. It’s unlikely that investors will see any significant capital returns, with net losses reported in the past four quarters.

Occidental is Appaloosa’s seventh-largest holding. The fund trimmed its position by 31% during the last quarter.

D.R. Horton, Inc. (DHI)

D.R. Horton was founded in 1978 in Fort Worth, Texas. The company has been the largest home builder by volume since 2002. The company operates in 91 markets in 29 states across the U.S. The company’s brand portfolio includes D.R. Horton (quality & value brand), Express Homes (first-time home buyer), Freedom Homes (active adult) and Emerald Homes (luxury), which constructs and sells high-quality homes with sales prices ranging from $150,000 to over $1 million.

The corporation also provides mortgage financing, title services and insurance agency services for home buyers through their mortgage, title, and insurance subsidiaries. D.R. Horton trades on the NYSE under the ticker symbol DHI and boasts a $31 billion market capitalization. In the trailing twelve months, D.R. Horton closed 80,267 homes.

D. R. Horton’s earnings have grown very consistently since 2011, once the company recovered from the financial crisis. Still, the corporation has grown earnings by 44.7% on average per year over the last nine years. In the past five years, this growth rate has been 25.9% on average per year. The strong demand for housing does not look like it will let up soon. However the business is cyclical, so we estimate an earnings growth rate of roughly 7%. Earnings could come in even stronger if the housing boom continues and interest rates stay low.

Appaloosa initiated a position in D.R. Horton as recently as Q1-2021. It is now the fund’s eight-largest holding.

Alibaba Group Holding Limited (BABA):

Alibaba, the Chinese tech behemoth, has been in Appaloosa’s portfolio since Q2-2017 and has since grown to its ninth-largest position. The company recently reported its Q2 results with revenues of $31.81 billion, a 33.8% growth rate year-over-year.

While Alibaba remains a highly profitable company, displaying net income margins that often surpass the 30%+ levels, its shares have been recently lagging due to the ongoing concerns surrounding Chinese equities. Further, the Chinese government’s involvement in steering the company’s direction, combined with the ongoing crackdown on Big Tech, has also been raising questions among investors.

While those interested in Chinese tech stocks are likely to find Alibaba to be one of the most attractive, they should also consider the underlying risks involved. Appaloosa cut its Alibaba position by 48% during the quarter.

Energy Transfer LP (ET)

Appaloosa trimmed its Energy Transfer stake by 53% during this past quarter, yet the stock remained in its top 10 largest holdings amid the rest of its portfolio adjustments. Recently, Energy Transfer recaptured the upper hand following the District Court’s decision to refuse to shut down the Dakota Access Pipeline.

The company should therefore face reduced cash flow risks going forward. The Master Limited Partnership is currently yielding 6.4% despite slashing its distribution in half last October due to the pandemic.

Energy Transfer is Appaloosa’s tenth-largest holding, accounting for around 3.8% of its total portfolio.

Final Thoughts

Appaloosa Management has had a prosperous past, with multiple achievements under Mr. Tepper’s leadership. The firm has spoiled its investors with jaw-dropping returns during adverse economic times. Mr. Tepper’s departure marks a new era for the fund.

While the firm’s public holdings have slightly lagged the market over the past three years, it’s still early to judge, as the firm could once again shine during a potential future recession.

 

Additional Resources

See the articles below for analysis on other major investment firms/asset managers:

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