By Eric Winter
Hedge fund owner, philanthropist, and billionaire David Tepper has accomplished quite a bit in his 55 years, including netting a $7bn gain in 2009 with his fund, Appaloosa Management. Four billion dollars of that went directly to Tepper's bank account, ranking him in the top 300 wealthiest people in the world. He seeks out opportunities particularly in distressed Financial and Technology stocks and has been known to invest heavily in companies whose market caps qualify them as small-caps. Tepper's current portfolio is ripe with these opportunities, many of which he has been invested in for over a year now. We have done our own research on the most popular small-caps owned by funds, and we've found that this listing can beat the S&P 500 index by 18 percentage points per year (see here for more details). Read on to see which small-caps this billionaire currently holds.
The fourth quarter of 2011 showed that Tepper had about 6mm shares of a single $3.4bn stock, namely The Goodyear Tire & Rubber Company (GT). The tire manufacturer ended 2012 on a relatively flat note, but Tepper's position size grew almost every quarter, settling on a current amount of 11.2mm shares in Appaloosa's portfolio. With roughly $175mm committed to the company now, Tepper might be hoping that Wall Street's future valuations for the stock are correct. Mean price targets a year out show that GT has over 20% to grow to meet their expectations. If they're right, Tepper could win big on GT in 2013. Steven Cohen of SAC Capital Advisors has built his position up similar to Tepper, with roughly $70mm in the stock.
A big performer in 2012 was Dean Foods Company (DF), which gave investors who bought this time last year a return of 69%. The gain was largely helped along by consistent earnings beats and quarterly ratings support from the likes of Goldman Sachs and Morgan Stanley, most of whom recommended or currently recommend a buy. Continued success will be dependent on improving cost control measures and a stabilized economy, with the latter being a factor that Dean Foods can't positively predict. Tepper reduced his position throughout 2012, possibly taking some serious profits along the way. Billionaire Israel Englander built up a $14.5mm position in DF.
Tepper made large efforts to bump up his position in US Airways Group, Inc. (LCC) throughout most of 2012, starting the year around 3.2mm shares. As of his last reported 13F filing, he now carries 12.9mm shares, representing a 303% jump. LCC also had a great 2012, returning around 60%, once again on the heels of consistent earnings beats every quarter. Its most recent announcement on January 23rd of this year brought on a 44% surprise over EPS estimates. Famed investor George Soros showed a 387% increase in his position in LCC in his last 13F Filing, totaling a $65mm investment for his fund Soros Fund Management (view this billionaire's top positions here).
Calumet Specialty Products Partners LP (CLMT) saw very little activity from Tepper in the past year, with his share size remaining the same every quarter. However, this hydrocarbon producer and master limited partnership was still able to net Tepper extremely positive gains through both share performance (62% gain in the past twelve months) and through one of the highest dividend yields we've seen, coming in at 7.4%. CLMT has been aggressive in terms of acquisitions as well, recently using its cash to purchase NuStar Energy LP for $115mm. Ken Griffin of Citadel Investment Group showed holding put, call, and cash positions for the stock as of his last 13F filing. However, he dropped his put position considerably and increased his stock position, indicating bullish sentiment from the billionaire.
Mueller Water Products, Inc. (MWA) is the last small-cap to make our list, with a market cap coming in at slightly under $1bn. As the name suggests, the company makes products used in the transmission, distribution, and measurement of water. Even compared to the massive gains that the other stocks have provided in 2012, MWA takes the cake, registering a 92% return in the last year, while also giving a modest dividend yield of 1.2%. The increase in price per share saw the market value of the position almost double in 2012, despite Tepper reducing his position by 500,000 shares from Q1 2012 to Q2 2012. Notable small-cap investor Chuck Royce owns 2.5mm shares of MWA in his fund.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.