Appaloosa Management's 23 Stock Portfolio List | Top 8 Holdings Analyzed

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Appaloosa Management’s 23 Stock Portfolio List | Top 8 Holdings Analyzed


Updated on July 5th, 2022, 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 ~$2.5 billion in managed securities under management, a 34.2% 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-May 2019 through mid-May 2022) would have generated annualized total returns of 19.9%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 16.1% 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 $15.8 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 $2.5 billion.

Appaloosa Management’s New Buys & Sells

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

Noteworthy New Buys:

Noteworthy 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 ~$2.5 billion-worth public equity portfolio consists of only 23 stocks, with the top 5 accounting for around 44.3% of its total holdings.

Source: 13F Filings, Author

The fund’s 10 largest investments are the following:

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 the company posting growth of over 41% last year, 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 19.1 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 $133.9 billion. As a result, the company can comfortably afford to invest in its long-term bets such as Waymo, and in the meantime return cash to its shareholders through buybacks. Alphabet has repurchased $52.18 billion worth of stock over the past four quarters, retiring shares at an all-time high rate.

Appaloosa trimmed its position by 11% during the quarter. The stock accounts for around 5.1% of its portfolio and is by far the fund’s largest holding.

Occidental Petroleum Corporation (OXY)

Occidental Petroleum is an international oil and gas exploration and production company with operations in the U.S., the Middle East, and Latin America. It has a market capitalization of $56.6 billion.

In early May, Occidental reported its financial results for the first quarter of fiscal 2022. Its average realized price of oil grew 22% sequentially while the chemical segment posted record earnings for a third consecutive quarter thanks to wide margins amid strong pent-up demand. As a result, Occidental grew its adjusted earnings-per-share 43%, from $1.48 to $2.12. Due to its high debt load, Occidental is one of the greatest beneficiaries in its sector from the 13-year high prices of oil and gas, which have resulted from the sanctions of western countries on Russia.

The company reduced its net debt by $6.7 billion last year and by $3.3 billion in the first quarter. However, due to its debt load, Occidental remains extremely sensitive to oil and gas prices.

It’s worth noting that the stock trades relatively cheaply from a forward EV/EBITDA perspective. The company is also expected to achieve near-record EPS this year amid elevated commodity price levels.

Occidental is Appaloosa’s second-largest holding. The fund trimmed its position by 56% during the last quarter.

Meta Platforms, Inc. (META)

Meta Platforms has had a place in Appaloosa’s portfolio since Q1-2016 and is now the fund’s third-largest holding.

Meta is a tremendous cash cow, but with a problem. With strong financials, a healthy balance sheet, and the best social media platform for advertisers, Meta has been dominating the social media industry. The company reported an all-time high bottom line of $19.37 billion in FY2021, amid great user growth, notwithstanding now decelerating to the single digits.

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

On the other hand, the stock has failed to attract a higher multiple, as the steep scrutiny it has faced over the past few years have had an impact on the valuation. Speculation over the company’s huge spending toward “The Metaverse” has also spurred uncertainty. The stock is only trading at around 16.0 times its underlying earnings, despite its consistent profitability and future growth prospects.

With its ARPU (average revenue per user) still very strong, Meta’s financials are more than likely to continue expanding rapidly. Meta’s investment case today does not only include the potential for a significant upside but also comes with a great margin of safety.

If such a valuation expansion never appears, and Meta continues to trade at a forward P/E of around 16.0, at an EPS growth rate of 10%-15% in the medium term (which the current user and APRU growth trajectory and ongoing stock repurchases could reasonably sustain), investors should achieve equally satisfactory returns with a constant valuation multiple.

Meta Platforms stock currently accounts for 9.7% of the fund’s total holdings.

Macy’s, Inc. (M)

Macy’s climbed among the company’s top holdings after the fund increased its position in the stock by 93% last year.

Macy’s reported its first quarter earnings results on May 26th. The company reported that its revenues totaled $5.4 billion during the quarter, which was ahead of what the analyst community forecasted, beating the consensus by $20 million. Macy’s revenues were up by 14% versus the previous year’s quarter, which had seen a negative pandemic impact.

The revenue increase can be explained by the easing impact of the coronavirus pandemic in Macy’s home market, the US, where economic reopening efforts allowed Macy’s to operate more freely compared to the comparable quarter from the previous year. The revenue increase resulted in a major margin improvement compared to the previous year’s quarter, which is why the company managed to get its profitability up significantly.

The company has beaten estimates consistently over the past few quarters as illustrated below, which is rather promising in regards to its future prospects considering that its investment case still holds notable risks.

The fund trimmed its position by 21% during the previous quarter. Still, the stock accounts for 9.1% of Appalossa’s portfolio. The fund owns around 2.93% of the fund’s total shares outstanding.

EQT Corporation (EQT)

Pennsylvania-based EQT Corporation serves as a natural gas production company in the United States. The company produces natural gas and relevant liquids, including ethane, propane, natural gasoline, isobutane, and butane. The company features roughly 25.0 trillion cubic feet of proved natural gas, NGLs, and crude oil reserves across about 2.0 million gross acres, including 1.7 million gross acres in the Marcellus play.

While the company has managed to grow its sales over the past few years, it remains unprofitable on a GAAP basis. This has led to the deterioration of its common equity value. Thus, investors must be wary before allocating capital to the stock.

EQT Corporation is Appaloosa’s fifth-largest holding, accounting for 8.6% of its 23-stock portfolio. The position was trimmed by 19% in the previous quarter.

Micron Technology (MU)

Despite Appaloosa trimming its Micron Technology stake by 51% last year, the company is currently the fund’s sixth-largest holding, accounting for around 8.1% of its public equity investments. The stock has declined notably lately amid macroeconomic-related fears regarding the robustness of future semiconductor sales. The stock is considered somewhat speculative these days, yet its robust profitability over the last several years has proven bears and short-sellers wrong.

Many had also predicted that the company’s top & bottom lines would suffer due to the pandemic. However, Micron posted a robust FY2021 net income of $5.86 billion. The company is expected to produce EPS of $8.66 this year. This implies a forward P/E in the single digits which indeed suggests a relatively fair multiple for a semiconductor company.

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

Appaloosa trimmed its Micron position by 23% during the quarter.

Energy Transfer LP (ET)

Energy Transfer operates one of the largest and most diversified portfolios of energy assets in the United States. Operations include natural gas transportation and storage along with crude oil, natural gas liquids, and refined product transportation and storage totaling 83,000 miles of pipelines. Energy Transfer, a $30.9 billion market capitalization company, also owns the Lake Charles LNG Company and stakes in Sunoco LP (SUN) and USA Compression Partners (USAC). On December 7th, 2021 Energy Transfer completed the acquisition of Enable Midstream Partners (ENBL) in a $7 billion stock-for-stock deal.

In early May, Energy Transfer reported its financial results for the first quarter of fiscal 2022. The company grew its volumes in all segments and also benefited from higher commodity prices and the acquisition of Enable. However, distributable cash flow decreased from $3.9 billion in the prior year’s quarter to $2.1 billion due to extraordinary results in last year’s period amid winter storm Uri.

During the quarter, Energy Transfer increased its leverage ratio (Net Debt to EBITDA) from 3.07 to 3.55 but it posted a strong distribution coverage ratio of 3.4. It also raised the quarterly dividend by 14%, on top of the 15% dividend hike in the previous quarter. It thus now offers an annualized distribution of $0.80 while management reiterated that it has a goal of restoring the annual distribution to $1.22 at some point in the future.

While units of Energy Transfer have somewhat recovered lately, the stock remains reasonably valued at a forward EV/EBITDA of 7.7 considering the ongoing favorable energy market environment and its overall qualities.

Energy Transfer is Appaloosa’s seventh-largest holding, accounting for around 5.7% of its public equity portfolio. The position was trimmed by 25% during the previous quarter.

Microsoft (MSFT):

Found amongst the top holdings of the majority of the funds we have covered, Microsoft is Appaloosa’s eighth-largest holding, occupying 5.2% of its portfolio. The fund boosted its position by 23% during the quarter.

Microsoft is a mega-cap stock with a market capitalization of $1.85 trillion.

Supported by the company’s strong profitability, management has been consistently raising buybacks over the past decade to further reward its shareholders. The amount allocated to stock repurchases has reached new all-time highs over the past four quarters, at nearly $31.1 billion.

Revenue growth remains in the double-digits, so it’s likely to see capital returns accelerating moving forward. The company is also growing the dividend at a double-digit rate, though at the current yield, which stands below 1%, investors should expect the majority of their future returns in the form of capital gains.

Despite that, Microsoft’s cash position has been growing continually, with the company currently sitting on top of a massive $104.6 billion cash pile.

Further, while many companies had chosen to utilize the ultra-low interest rate environment over the past several years to raise cheap debt and buy back stock, Microsoft’s remained prudent and thoughtful. Not only are current earnings extensively covering buybacks (~60% buyback “payout ratio”), but long-term debt has been substantially reduced from $76 billion in mid-2017 to around $48.1 billion as of its last report.

It is impressive that a stock with a market capitalization of $1.85 trillion still has such a strong growth momentum. Shares are also trading at a forward P/E ratio of around 23.3, which could signal an opportunity against the company’s strong growth velocity, especially from Azure. Due to Microsoft’s robust growth and financials, it’s likely that investors won’t let shares trade at much of a discount going forward, despite the underlying shaky macroeconomic environment.

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.

The firm’s public holdings have overperformed the market over the past three years, while Appaloosa could be well-positioned to shine further going forward considering management’s extended experience.

 

Additional Resources

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

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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