Appaloosa Management's 40 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Appaloosa Management’s 40 Stock Portfolio: Top 10 Holdings Analyzed


Updated on June 2nd, 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 ~$6.9 billion in managed securities under management, a 4.5% increase from its previous quarter amid higher capital allocation in its public-equity holdings, possibly due to acquiring more clients.

Investors following the company’s 13F filings over the last 3 years (from mid-May 2018 through mid-May 2021) would have generated annualized total returns of 10.0%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.6% 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 explains its current reduced AUM of $6.9 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 40 stocks, with the top 5 accounting for around 46% of its total holdings.

Source: 13F Filings, Author

The fund’s 10 largest investments are the following:

Amazon (AMZN)

Jeff Bezos’s e-commerce behemoth used to take up nearly ⅓ of Appaloosa’s a couple of quarters earlier. With the fund’s traditional strategy of concentration, management’s faith placement in Amazon has been typical amongst multiple funds as of late.

The company seems unstoppable both in terms of its physical and digital infrastructure capabilities. Still, with Appaloosa booking some profits out of its humongous stake, Amazon currently occupies around 9.7% of its total portfolio. The fund trimmed its position by around 5% as of its latest filing.

Amazon delivered another spectacular quarter recently, with Q1 AWS net sales up 32% YoY to $13.5B, topping the 22.5% growth rate consensus estimate. Revenue grew to $108.52 billion, a 43.7% increase YoY, contributing to all-time high LTM (Last Twelve Month) sales of $419 billion.

Due to scaling its operations, the company’s net income margins have constantly been evolving, reaching 6.42% during this period, turning Amazon into an increasingly profitable growth monster. The stock is currently trading at a forward P/E of 58.5, but considering its EPS growth, it makes for a very reasonable valuation multiple.

T-Mobile (TMUS)

Appaloosa trimmed its TMUS stake by 14% after ditching its AT&T stake completely in the previous quarter.

With T-Mobile acquiring Sprint last year, the company should be able to actively compete with AT&T and Verizon. As a result of the synergies to be unlocked, the company should undergo a growth phase over the next few quarters. Revenues rose by 78% to $19.8 billion in the most recent quarter, with service revenues growing to $14.2 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 $2.8-$3.1 billion for FY2021 (up from $2.7-$3 billion), which amounts to double last year’s synergies.

The stock currently occupies around 9.4% of Appaloosa’s portfolio.

Micron Technology (MU)

Despite Appaloosa trimming its Micron Technology stake by 9%, the company is currently the fund’s third-largest holding, accounting for around 9.3% 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 line 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 $9.02, implying a forward P/E of ~9, which indeed implies 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.

Facebook (FB)

Appaloosa decreased its Facebook stake by around 9%, retaining the stock in its fourth-largest position. Shares account for around 9.2% 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.

The company’s MAU growth rate has been sustained over time, never falling under the double-digits, which is a fantastic feat considering that 2.8 billion people use its family of apps already.

The company currently displays all-time high LTM revenues and net income of $94.4 billion and $34.7 billion, respectively, while the stock trades at 25.4 times its underlying earnings, which makes for a cheap multiple at its ongoing growth rates.

With its ARPU (average revenue per user) growing, we are confident that Facebook’s financials will continue expanding rapidly, and the stock will eventually reflect the company’s underlying qualities, sending shares significantly higher.

Alphabet (GOOGL)

Appaloosa also trimmed its position in Alphabet by around 9%, likely in efforts to diversify its portfolio against the company’s year-long rally. The company is another example of showcasing world-class financials and robust growth.

Further, the stock trades at an attractive valuation of around 28 times the company’s forward earnings, which makes it one of the more reasonably-priced technology stocks.

Alphabet’s growth seems to be re-accelerating as well, with its latest results posting revenue growth of 23.5%. Q1 revenues increased 34% year-over-year to $55.3B, while operating margin rose to 30% compared to last year’s 19%, further boosting the company’s future profitability.

It is currently Appaloosa’s fifth-largest holding or around 8.6% of its public-equity holdings.

PG&E Corporation (PGE)

PG&E was Appaloosa’s largest holding at one point. The hedge fund slashed its position by a further 32% 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 currently depressed situation.

Should the company recover from its current headwinds, 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 the stock is if one considers its forward net income estimates. Analysts expect profitability to resume next year.

Alibaba Group (BABA)

Alibaba’s stake was slashed by 40% during this past quarter. Shares have remained depressed over the past year, despite the company posting record revenues and profits. This is due to Chinese equities facing increasing scrutiny, and Alibaba itself recently ordered to pay $2.75B in fines by the Chinese regulators.

However, what the market seems to see as “high risk” when it comes to Alibaba is likely mostly a psychological phenomenon. The company continues to be a growth juggernaut, with no signs of slowing down. As far as the recent fine, the $2.75B equates to around 3.8% of Alibaba’s cash position, or what the company makes every couple of weeks or so.

With an average estimated buying price below $200, Appaloosa has profited nicely off of its Alibaba stake. The stock is currently trading at a very inexpensive valuation of around 20 times its forward earnings.

Still, we can’t ignore the other major risk revolving around Chinese equities, which is the potential for a NASDAQ de-listing.

Energy Transfer LP (ET)

Appaloosa trimmed its Energy Transfer stake by 5% during this past quarter, yet the stock ascended to 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 7.7%, despite slashing its distribution in half last October due to COVID-19’s effects in the energy sector.

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

Occidental Petroleum Corporation (OXY) & HCA Healthcare, Inc. (HCA)

Last but not least, Appaloosa’s ninth and tenth largest holdings are both relatively new entries in this list (made it to its top 10-largest holdings last quarter), accounting for around 3.5% and 3.2% of its portfolio, respectively. Occidental, along with the other new stakes that the fund initiated during the quarter like Chesapeake Energy Corp and 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 adverse effects of the pandemic. It’s unlikely that investors will see any significant capital returns back at this point, with all 4 of its previous quarters resulting in net losses.

Finally, the fund trimmed its position in HCA by 5% to a $199 million stake. Appaloosa owns only two stocks operating in the healthcare sector, with HCA being the largest one. The medical care facilities provider posted resilient results during FY2020, and while it did cut its dividend during the year to remain prudent, it reinstated as of the past couple of quarters.

The stock currently trades at just over 15 times its forward earnings, being quite fairly priced considering its long-term growth prospects.

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.

 

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